Business Loans

What “Short Term Loan, No Credit Check” Really Means for Your Small Business

Jul 30, 2022 • 9 min read
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      You might have seen ads online for, or heard whispers about, a short term loan without a credit check—and if it sounded too good to be true at the time, you’re not wrong to have thought so. 

      Short term loans are already one of the most appealing loan types in the small-business lending world. These loans have relatively easy-to-complete applications and are known for their incredibly short application approval time. They’re also placed on faster repayment schedules than other kinds of loans, meaning you can be finished with payments in as little as a few months or a couple of years.

      But the flipside to the quick approval and faster schedule is interest, which is often higher for short term loans—not including additional fees. This is why many lenders look for a business to offer proof that they’re able to pay the loan back faithfully, often in the form of a credit check.

      Do short term loans without credit checks even exist? And if so, what’s the catch? Read on to learn more about your options—and ways to improve your credit score if your business could use a boost.

      A Loan Without a Credit Check? Let’s Bust the Myth

      Technically, short term loans without credit checks do exist: they’re just incredibly risky for small business owners to pursue. 

      As Nerdwallet describes it, “With a no-credit-check loan, the lender doesn’t review your credit history or credit score when deciding whether to give you a loan. Omitting credit checks is common at payday lenders and other companies that offer high-interest loans.” And when we say high, we mean high: usually above 36% interest, but sometimes reaching well into the three figures—think 100%, 200%, or more.

      How a No-Credit-Check Loan Works

      A no-credit-check loan means that lenders are going into the loan agreement without a clear picture of your ability to repay the loan. As a result, they then pass that risk onto you with astronomical interest rates. 

      Check out this example from Nerdwallet that illustrates how quickly this rate can add up:

      If you have poor credit and take out a 1-year, $2,000 loan with a 36% APR, your monthly payment will be $201. That same loan through a no-credit-check lender with an APR of 200% would run you $396 a month—nearly double the cost.

      In the long run—especially if you face issues repaying the loan—this means that you could be in worse shape financially than you were when you first needed the loan.

      Why Are Credit Checks Performed?

      Just like a personal credit score, which assesses the creditworthiness of an individual person, a business credit score reveals the strength of a business’s credit history. This is what many lenders use to decide if you’re a safe or risky bet for a loan.

      For new small businesses or those who’ve faced some economic difficulties, needing a solid credit score to secure a short term loan can create an obstacle to success. For reference business credit scores generally fall between 1 and 100, with 75 or higher being considered excellent.

      There are 3 main agencies that determine business credit scores: Dun & Bradstreet, Equifax, and Experian. Each has their own methods of calculating business credit scores, but all 3 draw from these factors in assessing a score:

      • Credit lines a business applied for in the past 9 months
      • Credit lines opened by a business in the past 6 months 
      • Credit repayment history over the past 12 months
      • Late payments on a business’s record

      Other data that credit bureaus use to calculate scores include a business’s revenue; assets; uniform commercial code (UCC) filings, other public records, and liens; and the overall health of the industry in which the business operates.

      How Important Is a Credit Score to Securing a Short Term Loan?

      The short answer: pretty important, especially if you want a reasonable interest-rate schedule. 

      For loans using a personal credit score, you can be approved for short term loans with a credit score as low as 500. A score of 350 to 579 is considered “poor,” while a score ranging from 580 to 669 is considered “fair.” As your credit score climbs to 650 or above, you will be able to qualify for a large number of short term loans. 

      In contrast, longer term loan lenders generally want applicants with a minimum credit score of 700, and some prefer applicants to have credit scores in the “exceptional” range of 800 to 850, the upper limit of credit scores.

      Alternatives to No-Check Credit Loans

      If a credit score presents an obstacle to short term loan funding for your business, alternative lending options like invoice factoring and merchant cash advances may be a better fit—especially if you need the money for a specific reason that these loan types cover.

      Another possible great option for your small business:  business credit cards or lines of credit. Many of these products have higher interest rates, but you can often find deals with some searching.

      How to Improve Your Business Credit Score

      If your credit scores aren’t where you’d like them to be, you can address the problem with a few proactive steps. First, monitor your scores regularly and look for ways to improve, including correcting errors on your report. As many as 25% of business credit reports may contain errors or are missing key information. If you clean up those mistakes, you could see a rise in your score.

      Also, make sure to sign up for automatic payments whenever that’s an option. Missing the occasional payment could happen to anyone, and doing so negatively impacts your credit score. Automating payments allows you to reduce the likelihood of negative factors on your score as a result.Lastly, patience is key: the longer a business is open, the more credit history they accrue, and the more likely their score is to rise.

      How to Shop for a No-Credit-Check Loan 

      All things considered, you may still need a no-credit-check loan to advance your business’s short-term goals. Here’s what to look for in a lender and some potential red flags to avoid along the way.

      Selecting a No-Credit-Check Lender

      Look for a lender who’s transparent about their rates and fees (the last thing you want is an unexpected, costly surprise) and who will cover the loan amount needed to further your business plan. 

      Transparency will allow you to compare options, another key step in the selection process—and to take it a step further, get prequalified with several no-credit-check options if you can. “Even though applying for a no credit check loan won’t affect your credit score,” reports the experts at WalletHub, “it’s still a good idea to get pre-qualified with several lenders first. This will let you estimate your rates before you apply.”

      Red Flags to Avoid

      If you search for the above information and cannot receive it from a particular no-credit-check lender, that’s an immediate caution sign: do not proceed. With sky-high interest rates, you definitely don’t want to sign onto a no-credit-check loan without every detail understood ahead of time.

      For any short term loan, beware a lender who rushes you through the process, tells you to ignore fine print, cannot be easily reached to answer questions, or offers you an unbelievably low rate compared to their peers. If a rate or fee structure seems too good to be true, it probably is.

      How to Apply

      Once you’re ready to apply for your  short term loan, make sure you have all needed paperwork:

      This includes:

      • Your detailed business plan
      • Credit reports, if relevant
      • Your business history
      • Business tax returns
      • Personal tax returns 
      • Financial projections
      • Proof of collateral you might be offering (if you’re not applying for an unsecured business loan)
      • Business license or registrations

      Once you’ve applied, it’s time to wait and see—hopefully, an approved loan will help you move the needle on your small business’s plans for the future. Lendio is here to help.

      About the author
      Rachel Mennies

      Rachel Mennies is the owner of The Little Book, LLC, a small business that provides writing and editing services to individuals, nonprofits, and businesses of all sizes. At last count, Rachel's writing and editing skills have helped shape nearly 500 articles and blog posts for

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