How to Get a Business Loan With Bad Credit

6 min read • May 12, 2021 • Grant Olsen

Have you ever wondered why lenders pay such close attention to your credit score? It’s because they’re protecting their assets and want to determine whether they can trust you to consistently repay the money. If your credit score reflects a solid track record, you’ll get serious consideration. If you have major blemishes in your past, many lenders take defensive action.

Look, we realize the life of an entrepreneur is full of risk. We’ve all collected our share of bumps and bruises along the way. So there’s no shame in a less-than-stellar credit score. And if you feel like your bad credit is keeping your business from achieving its potential, you’re not alone. However, don’t let 1 or 2 rejected loan applications keep you down. It is possible to get business loans for bad credit.

How to Get a Business Loan

Credit score requirements for business loans vary by lender and the type of loan. No credit requirements are the same, so you’ll always need to do your due diligence to find your best opportunities. This is especially true for bad credit loans online.

Traditional banks will typically require good or excellent credit to qualify for a business loan, meaning you should have a personal credit score of at least 670, although some banks will consider applicants with credit scores in the low 600s.

If you’re applying for a long-term or SBA loan, banks may want to check your business credit score in addition to your personal credit score. In this case, you’ll want to have excellent business credit as well—a Dun & Bradstreet score of 80 or above should suffice.

Finding Good Loans for Bad Credit

There’s still hope for business owners with bad credit. While big banks tend to offer the lowest interest rates, plenty of other affordable lenders out there offer bad credit loans online.

Lending Marketplaces

Lending marketplaces have opened the door for a new range of business owners to access business loans. These marketplaces are home to a wide range of lenders and leverage technology to connect borrowers with a loan that suits their needs and credit profile.

Loans from these lending marketplaces have a much higher approval rate than those from traditional banks. They also tend to be much easier to apply for, and you’ll often receive funding very quickly. This makes them an ideal source of loans for people with bad credit.

Microloans

Microloans are exactly what they sound like⁠—small loans. These loans are geared toward entrepreneurs and therefore easier to qualify for than traditional loans. No credit? That’s not necessarily going to be a roadblock.

Your microloan will typically be fulfilled by several lenders pooling their money together, so each lender can spread their risk among many different small loans. This feature makes peer-to-peer lenders more willing to lend to people with bad credit. However, if you don’t have good credit, you will end up paying higher interest rates.

Secured Loans

Secured business loans are loans you guarantee by offering an asset as collateral. If you fail to repay your loan, the lender can seize your asset, which could be your home, place of business, equipment, or other capital. This small business loan is riskier for you because you could end up losing your property. However, it minimizes risk for the lender, meaning they’re more willing to lend you money despite a bad credit score—and might even offer better rates than you’d get on an unsecured loan.

3 of the Most Popular Loans for People With Bad Credit

It’s important to know how to get a business loan if your credit isn’t in a great place. And there is a trio of financing products that often fit the bill perfectly. These loans for bad credit options are different from typical loans both in their structure and their low barrier to entry.

Let’s review each of the loans for bad credit and some of the unique attributes:

1. Business Lines of Credit 

A business line of credit is a financing option that functions a lot like a credit card. In order to qualify, you’ll need to have a credit score of 560 or higher, have a business that’s been operating at least 6 months, and make $50,000 or more a year.

2. ACH Loans

Here’s a loan product that actually doesn’t even require a hard credit pull in order to qualify. As long as you’re bankruptcy-free and your business brings in at least $12,000 a month, you’ll likely be a prime candidate for an ACH loan.

3. Merchant Cash Advances

Lenders focus on your business’s future earnings with a merchant cash advance, so they might not even pull your credit. As long as you submit 4–6 months of your past bank statements or receivables that meet the requirements, you should be good to go.

Be aware that although these financing products provide easier access to cash, they’re also known for high interest rates and less favorable repayment terms. So you’ll want to use them judiciously.

Sustaining a Positive Credit Score

If you’re a business owner in need of a business loan, there are always options. Bad credit won’t necessarily bar you from borrowing money, but you should keep in mind that you’ll probably have to pay a higher interest rate and your options will be limited. To give yourself the best opportunities, you should strive to improve your credit score.

“To demonstrate that you are financially responsible, you need to develop a financial track record in good standing,” explains business finance expert Zack Friedman. “Your payment history is one of the largest components of your credit score. To ensure on-time payments, set up autopay for all your accounts so the funds are directly debited each month. FICO scores are weighted more heavily by recent payments, so you can ‘override’ a missed payment by developing a pattern of more recent on-time payments. Therefore, if you have a delinquent payment, pay off the balance.”

Yes, consistency will always be the name of the game. So you should only borrow money when you know you’ll be able to make the payments. As you continue to demonstrate your financial reliability, call your credit card companies and ask for higher limits on your cards. This elevated access to money improves your credit utilization ratio, which in turn will enhance your credit score.

As you approach your financial health 1 payment and 1 positive action at a time, you’ll lay the groundwork for a better future. Building credit takes time, but it’s always worth it.

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.