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How to Get a Startup Business Loan for Bad Credit in 2023

Jan 19, 2023 • 8 min read
startup loans when you have bad credit
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      Starting a small business is expensive. Almost every small business owner faces startup expenses, whether you’re a solopreneur needing a laptop or a construction company purchasing a lot full of heavy machinery. Inventory and equipment must be bought, employees or contractors must be paid, and rent comes due every month.

      What’s harder, outside funding is often difficult to access when your company is young but in need of capital. Startup business loans are a great way to bridge this funding gap—and even if you have a suboptimal credit score, there are forms of financing you still probably can access.

      What Is a Startup Business Loan?

      As its name suggests, a startup business loan is a form of financing made available to new businesses, i.e., companies that have just “started up.” While “startup” is often used to refer to firms in the tech field, lenders have startup business loans available for companies in any industry. The reality of startup business loans is a little more complicated, though. First, if you just established your business today, you probably won’t qualify for a startup business loan. Generally, lenders that offer startup business loans require applicants to show that they’ve been in business for at least 6 months to a year. This doesn’t necessarily mean that your doors have been open for half a year or you already have a full roster of customers, but financers want to see that your business has existed as an entity for at least 6 months. Once you’ve passed this timeframe, you can use a startup loan as capital for your business. The funds can be used for payroll, rent, inventory, or many other expenses. You should create a business plan so you can understand what sort of costs your young business will have. In turn, you can communicate this information in your financing application.

      Is It Hard to Get a Startup Business Loan With Bad Credit?

      The difficulty you’ll experience qualifying for a startup business loan with bad credit ultimately depends on how low your credit score is. If your score is between 700 and 800, you’ll have a strong chance at approval. If your score falls under 680, you’ll likely face difficulty finding approval for many startup business loans—thankfully, there are other options available for you, like invoice factoring.

      You can position yourself well to be approved for a startup business loan even with a lower credit score by meeting other requirements. For example, if you can offer collateral—like real estate, equipment, or an automobile—this can increase your odds. You also can improve your chances of approval if you can show experience related to your business’s field: for example, if you’re a construction worker starting up your own contracting company.

      If your credit score is really low, you should consider funding strategies that don’t require a loan application. Many businesses have been funded with personal savings, investments from family or friends, and crowdfunding options like Kickstarter.

      Business Loan Options for Startups With Bad Credit

      If you’re starting a business with a lower credit score, there are several loan routes you can take. Experts consider the startup loans backed by the Small Business Administration (SBA) to be the gold standard in startup loans. These include SBA 7(a) loans, 504 loans, and microloans. You apply for these loans through a lender, and these financers usually require applicants to have a credit score of about 640.

      Startup business loan options and other financing is available from platforms like Lendio with amounts ranging from $500–$700,000. The repayment period can be as long as 25 years, and interest rates typically max out at 17%. Once approved, your startup will usually have access to the funds in 2 to 4 weeks. These loans usually require a minimum credit score of 680.

      If your credit score is too low to meet the minimums for these startup business loans, you should widen your search to include alternatives. There is a growing number of small business financing products that don’t emphasize credit scores in their applications.

      How to Get a Startup Business Loan With Bad Credit

      If your credit score is at least 680, you can go through the application process for a startup business loan with the knowledge that you meet the minimum score for qualification. It is best practice, though, to make sure you meet all the other application requirements, like being in business for 6 months—and longer is better. Think, too, about assets you can offer as collateral. Next, be sure to draft a solid business plan—this will be valuable for lenders, but it will also help you navigate the future of your company.

      If you don’t meet the minimum credit score requirements for a startup loan, you should widen your search to find financing products that don’t demand higher scores. Importantly, many loan applications do a hard pull on your credit, meaning a lender requests a copy of your credit history. This action usually has a negative impact on your credit score—so be careful about applying for funding, especially if you don’t think you’ll qualify.

      What Credit Score Is Needed for Startup Business Loans

      Credit scores are to lenders as mountains are to expert skiers—the higher, the better. No matter what your score is now, you can probably better position yourself for application approval if you can move your score upwards. Still, many lenders have minimum credit score thresholds, and you have a strong chance of qualifying as long as your score is at or above the minimum of 680.


      Only 21% of Americans have “exceptional” credit scores—a score between 800 and 850 (the maximum score possible)—according to Experian. If your score is 800 or above, you’re in an excellent position for qualifying for business loans. In fact, you should shop around for the best terms possible, because you can probably nab a great interest rate. You could also seek out a term loan from a traditional lender, like a bank or credit union, if your credit score is so high. Term loans usually have the best rates, but lenders often have strict approval requirements, like a solid business plan.

      The bottom line is that if your credit score is 800, you are in a great position to qualify for almost any form of funding—as long as you meet the financier’s other requirements. As noted above, even for borrowers with high scores, your business will have to have been in existence as an entity for 6 months or longer. In some cases, you might also have to put up collateral, like a cash deposit or property, to back a loan. Even though you have an amazing credit score, any new business is seen as a risk for lenders.

      Unfortunately, if your credit score is below 600, your business funding options are more limited. About 16% of Americans have a credit score between 579 and 300 (the minimum score possible). While startup loans are usually out of reach for small business owners with credit scores of 550 and below, you still have options: between short-term business loans and alternative financing products, something likely exists that will work for your situation.

      Short-term business loans work like a lot like short term personal loans, and many do not require collateral. Alternative forms of financing include invoice factoring, merchant cash advances, equipment financing, and ACH loans. These options usually don’t require a stellar credit score to qualify—and some don’t even require a hard credit check. However, you still usually have to be in business at least a few months and meet revenue minimums, meaning you probably won’t qualify if your business is brand new.If your credit score hovers around 550, you should prioritize improving it. The fastest way to boost your score is to pay down existing debt. There are other ways to bolster various components of your score as well, like by maintaining old lines of credit even if their balance is zero. 

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      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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