Here's How to Get a Business Loan if You Have Bad Credit

13 min read
bad credit business loans

Executive Summary

While having bad business credit can limit your options, it doesn’t mean that you’re barred from funding completely. In this article, we’ll talk about how you can qualify for business loans, and which options to look into. Explore business loans from OnDeck, Fundbox, Bitty Advance and Payability.

Disclaimer: Our first priority is giving you the best financial advice for your business. Tillful may receive compensation from our partners, but that doesn’t affect our editors’ opinions or recommendations in the content on our website. Editorial note

Best Business Loans for Bad Credit

A poor business credit score or thin credit history can get in the way when applying for small business loans, making it hard to qualify for funding (and for good interest rates at that). Conventional banks and financial institutions often don’t provide financing for businesses with bad credit scores or weak credit histories (either due to short time in business or the presence of derogatory marks such as liens). Lending to businesses with bad credit is deemed “high risk” and banks not only have a chance of being unable to make their money back, but also of not having enough reserves to protect its depositors in case of a business’s default on a loan.

Because of this, it is far easier for businesses with a good credit history to qualify and be approved for funding. However, as more innovative solutions hit the market, there are a good number of options that businesses with a low credit score can apply for. The pursuit for small business financing does not have to stop at banks: a rising number of fintech and commercial companies offer small business loans that don’t require good business credit.

While having bad business credit can limit your options, it doesn’t mean that you’re barred from funding completely. In this article, we’ll talk about how you can qualify for business loans, and which options to look into.


Why your personal credit score is important

Business credit score is an indicator used by most conventional lenders to determine how financially reliable your business is. It reflects your company’s ability to pay back loans and receive goods from vendors under credit. Meanwhile, personal credit score is separate from your business. It reflects your own ability as an individual to repay loans or credit rendered personally to you.

When it comes to small business financing, including bad credit business loans, lenders will often consider the personal credit score of the small business owner during the application process. The FICO score is typically used when deciding whether to loan your business money. It is calculated based on length of credit history, how much credit you have, how much of your available credit is used, and payment history (if your payments are made on time).

The reason why lenders will check your personal credit score is usually to assess whether you have good enough credit to back the loan as a personal guarantor. This is often done when the business applying for funding has a thin credit file or doesn’t have enough assets to put up as collateral. The better your personal credit score is, the more business loan options you’ll have available to you.


How to improve your chances of getting a bad credit business loan

Getting a business loan with bad credit may be slightly more difficult. However, following these tips will help make the process a lot more straightforward and easier.

Get to know your credit score

Knowing your personal and business credit scores will help set your expectations early on in your search for the right business loan. Since these scores determine your funding options and how much you can get, take a look at your current state and use the information in your credit report to plan your next steps. For instance, you may choose to hold off on sending any loan applications in favor of improving your credit score first.

Do your research

While there are many bad credit business loan options available, each lender will have its own eligibility requirements. Lenders will look at your annual business revenue, personal credit score and the number of years in business, among other factors that will vary. Spend some time understanding lenders’ requirements and make a list of those you qualify for. It may even be helpful to talk to other business owners in a similar position as you.

Select the option that best meets your business needs

Once you’ve looked at which business loans you are eligible for, it is also important to consider which lender or loan type best meets your business needs. Will you be using the funds as working capital or to finance a new asset? Consider this against the types of loans and amounts made available.

Put up collateral

One way to improve your chances of loan approval is to offer collateral as loan security. Some things of value that can be put up as collateral include company equipment, vehicles and accounts receivable. Basically, any valuable business asset that can be sold if you default on payments can be considered for collateral. You’ll just have to talk to your lender about building that into the terms.


Can your business loan help build your credit score?

Yes, a loan can help you build credit by giving you a chance to showcase better financial habits. Just make sure that the loan reports to business credit bureaus, either automatically or upon request. Improving your credit score is important to increase the odds of you getting a loan with better terms in the future.

If you currently have bad credit, you should adopt new practices with your current loans. Make payments on time, keep your credit balances below 30% of your limit, avoid having too many lines of credit and consistently monitor your credit score. Following these steps will help you climb out of the bad credit zone slowly but surely. Apart from credit score, making timely payments can also go a long way in establishing a good relationship with your lender, which can help you get better loan terms from them in the future.


The types of loans you can qualify for with bad credit

Traditional lenders typically don't approve business with poor credit, meaning bank loans, including SBA loans, are most likely off the table. Online lenders are probably a safer bet, as they are less likely to rule out small businesses with poor credit scores, and more likely to rely on other data points such as business bank account transactions.

The alternative lenders that provide loans for bad credit are typically private companies that operate similarly to the lending arms of traditional banks, but have the means of extending funding to companies with less than perfect credit because of factors such as better risk algorithms and less overhead that comes with having a brick and mortar presence. There is a range of business loans for bad credit provided by these lenders such as:

Short-term loan: OnDeck

A short-term business loan gives business owners a lump sum with a fixed repayment period over 6 to 18 months on a set payment schedule. The repayment sum includes the principal amount and any interest charged by the lender. Since the loan is short-term, it reduces the lenders’ risk by limiting the loan amount and shortening the repayment period.

One product worth considering is OnDeck’s short-term loan with loan amounts ranging from $5,000 to $250,000 and repayment term up to 24 months. By making your OnDeck loan payments on time, you get to build your credit score. Plus, if you’re in a time crunch, the same day funding facility allows you to get funds in your business bank account by 5:00 pm ET.

Short-term business line of credit: Fundbox

This is a revolving line of credit that business owners can withdraw funds from on-demand whenever necessary. Borrowers are able to access the funds up to a specified approved amount. If you need your business line of credit extended, a renewal needs to be made either semi-annually or annually. Be mindful of repayments since you will be charged interest on any open credit balance on your account.

There are vast options when it comes to lines of credit but Fundbox stands out with its lower credit score requirements and fast funding. You get your credit decision in minutes and funds as early as the next business day. However, you’ll need annual revenue of at least $100,000 and be in business at least 6 months to qualify.

Merchant cash advance: Bitty Advance

In exchange for future credit and debit card receivables, you could qualify for a merchant cash advance or also known as a Purchase of Future Sales Agreements. The time frame to pay back merchant cash advances depends on the volumes of future credit card sales. There is no term limit since the payments are connected to credit cards and their sales, and the repayment amount is based on a factor rate. Business underwriters tend to predict 6 to 18 months until the lump sum is paid back in full.

If you’re looking for a merchant cash advance, consider Bitty Advance which gives out funding amounts of $2,000 to $25,000 to many types of small businesses. You’ll need a business checking account, a credit score of at least 450, $5000 in monthly revenue and be at least 6 months in business.

Invoice financing for e-commerce: Payability

Invoice financing, sometimes referred to as invoice factoring (depending on how the loan is structured), allows business owners to get cash based on unpaid invoices. Basically, you can obtain a cash advance on your pending invoices. The unpaid invoices are collected directly from the customer, which mitigates credit risk for the lender. Since invoice financing relies on the credit of your customers, your business or personal credit score is not a huge deciding factor.

Financing company Payability offers e-commerce entrepreneurs a range of solutions for cash flow and working capital. Based on your marketplace sales, you can qualify for two types financing solutions:

  • Capital Advance: Get up to $250k to spend on inventory or marketing based on your sales and account health
  • Accelerated daily payouts: Get your payouts the next business day after selling, instead of waiting weeks

Eligibility is based on your sales performance and history, which means that no credit checks are required. You can apply online with your marketplace account and get funds as quickly as one business day.

Business credit card: Wells Fargo Secured Credit Card

There are a handful of business credit card options available if you have poor credit. Some of these options may require a personal guarantee or cash deposit as security, and you will likely have to start off with a lower credit limit. However, as you build your credit score through timely repayments and good financial habits, you can increase your credit limit with time.

The Wells Fargo Business Secured Credit Card helps you build credit by reporting your payment and usage behavior to the Small Business Financial Exchange (which then reports to all the major business credit bureaus, including Dun and Bradstreet, Equifax, and Experian). Depending on the collateral amount you put down, you can get a credit line up to $25,000. You may also have the opportunity to upgrade to an unsecured business credit card with responsible use over time. For the secured card, Wells Fargo does not list a minimum credit score, though you will have to open a Wells Fargo business bank account.


Choosing the best loan for your business needs

With the host of options available, here are some factors to consider before making your choice:

  • Repayment terms: While your eligibility will impact the term you qualify for, it is also important that you think about the repayment time frame that would work best for you, and if you think you can realistically pay the loan back in that period.
  • Interest and other fees: In order not to be caught off guard later on, look into the interest charged on your open balance and other fees related to your business loan. Consider the total cost to borrow, and if you may want to take out a lower loan amount temporarily, and reapply for a better rate in the future.
  • Loan amount: With bad credit scores, the loan amount you qualify for will be limited. If this is insufficient for your business needs, you may need to consider adding other alternative funding for the time-being. As your credit score improves, your lenders will also consider increasing your loan limits.


Alternatives to bad credit business loans

Though there are many options for small business loans available on the market today, even the ones designed for businesses with bad credit can prove difficult for some business owners to qualify for. Here are some alternatives you can consider if you struggle to get a bad credit business loan.


If your company is developing an innovative and exciting new product, crowdfunding can be a great way to get word out there and seek funding. You may be pleasantly surprised with the response you get. There are a number of online platforms that you’d be able to launch a campaign on. Crowdfunding can also be a great way to gauge early interest in your product and get some market validation.

Even if you’re not a startup, but simply a small business that has stumbled upon tough times, crowdfunding is worth a try. For example, during the pandemic, many businesses got through shutdowns with a little help from their community.

Small Business Grants

Grants for small businesses are an excellent option since you are not required to pay them back. The only issue is qualifying for small business grants can be difficult. Check what's available from your local, state or federal government and see if you meet the eligibility requirements. Often, these grants are only made available to certain industries or causes. A great place to start is

Friends and Family

Pitch your business plan to friends and family and get them onboard as investors or lenders. It may be intimidating to approach your loved ones but they are a viable resource worth considering. However, be upfront and clear about how you plan to use the funds and negotiate a repayment schedule. This helps them be aware of any risks and will help manage expectations.


How to get a better business loan in the future?

Bad credit business loans don’t usually come with the most favorable rates and terms in the market. Your goal should be to improve your financial position so you’ll be able to access better loan options in the future. Here’s how you can boost your chances for better loans later on:

Increase your personal credit score

As a business owner, having a good personal credit score opens you up to better financial opportunities. With a higher credit score, you’ll have no trouble when it comes to putting down personal guarantees on loans for your business and breeze through background checks.

Build your business credit score

With solid business credit, you’ll be able to apply for business financing from a wider range of providers. Traditional banks and lenders will be more willing to offer you business loans if your credit history reflects on-time payments and creditworthiness.

Review your business plan regularly

Business targets may shift as your business operates and you may experience new challenges along the way. By taking time to review your business plan, you’ll be able to strategize new ways to drive growth - whether through e-commerce, social media marketing or cost-cutting measures. Overall, it will contribute to the health of your business which means better credit opportunities for you.


Last words on small business loans for bad credit

Your personal and business credit scores make all the difference when it comes to business loans. Good credit scores give you access to better financing options, repayment terms, fees and perks. However, while you are on the way to better credit, alternative funding is a great avenue to help you grow your business and hit your goals. It is important that you apply for bad credit business loans from a reputable lender. Be sure to check ratings and reviews of the lending company before submitting an application. It's a small step that will protect you from falling victim to unscrupulous lenders and loan sharks.

About the author

Ken So

Written by Ken So

Ken is the Founder and CEO of Flowcast and Tillful. Having spent most of his career before Tillful in tech and investment banking, he covers all things business credit and finance with a twist of insider knowledge.

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