Lending Library

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 can probably still access.

Best startup business loans for bad credit with easy approval.

The following list highlights lenders from our selection of best business loans that offer minimum credit requirements of 650 or below and a minimum time in business requirement of six months or less.

Small 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. 

Service providers

As embedded financing unlocks new ways for business service providers and platforms to service their customers, financing options are now available in places you already frequent. From accounting software to e-commerce platforms, many tools you already use to run your business may offer access to capital directly within their interface—often with faster approvals and tailored options based on your business data.

SBA loans

While the SBA 7(a) and SBA 504 loan programs were created for established businesses, the SBA does offer two startup loans.

1. Microloans

The Small Business Administration's (SBA) microloan program is designed specifically to assist small businesses, start-ups, and nonprofit child care centers. This program offers loans up to $50,000, with the average loan being around $13,000. The funds can be used for various purposes including working capital, inventory, supplies, and machinery or equipment. However, microloans cannot be used to pay off existing debts or purchase real estate.

To qualify for an SBA Microloan, the borrower must meet certain criteria:

• Credit history - The borrower's credit history is reviewed. While there isn't a minimum credit score requirement, a good credit history can improve the chances of approval.
• Collateral - Depending on the loan amount, the borrower may have to provide collateral to secure the loan.

Remember, the SBA doesn’t provide the loan itself, but instead, it works with approved intermediary lenders to offer these loans.

2. Community Advantage 7(a) Loans

The Community Advantage (CA) program (now under the SBA 7(a) program) is another offering by the SBA, aimed at promoting economic growth in underserved markets. Community Advantage Small Business Lending Companies (SBLCs) can provide up to $350,000 in funding. These funds can be used for a range of business activities, including startup costs, expansion of an existing business, and working capital.

To qualify for a Community Advantage loan, certain criteria must be met:

• Credit history - Similar to the SBA Microloan, the borrower's credit history is assessed. While no specific minimum credit score is set, borrowers with a good credit history typically have a higher chance of approval.
• Collateral - Depending on the loan amount, collateral might be required to secure the loan. The specifics regarding collateral are determined on a case-by-case basis.
• Location - The business must be located in an approved underserved market. These included businesses located in Low-to-Moderate Income communities, Empowerment Zones and Enterprise Communities, Historically Underutilized Business Zones, Promise Zones, Opportunity Zones, and rural areas. Additionally, each lender is authorized to work within a certain state or group of states.
• Demographics: Underserved markets also include newer businesses in operation for less than two years, businesses that are at least 51% owned by veterans, or businesses with at least 50% low-income workers.

Remember, as with the SBA Microloan program, the SBA does not provide the loan directly. Instead, it works with approved SBLCs to provide Community Advantage loans.

Online lenders

In the realm of bad credit business loans, online lenders often emerge as a viable option for startups. These lenders provide a variety of financing options, many of which are designed with lenient credit requirements, specifically catering to business owners with bad credit. While online lenders also offer SBA loans and term loans with more stringent credit requirements, they also offer alternative forms of financing.

Business Lines of Credit

Many online lenders provide business lines of credit that allow businesses to draw funds up to a maximum limit as needed. Similar to a credit card, you only pay interest on the amount you use, making it a flexible financing option.

Invoice Financing

Online lenders often offer invoice financing, allowing businesses to borrow against their outstanding invoices. This can provide immediate cash flow while waiting for customers to pay.

Revenue-based financing

A revenue-based financing, sometimes called a business or merchant cash advance, is an upfront sum of cash in exchange for a slice of future sales. This can be a beneficial option for businesses with strong sales but poor credit.

Equipment Financing

Equipment financing is offered in the form of a term loan or equipment lease for the purchase of qualified equipment. Since the equipment serves as partial collateral for the loan, equipment funders often have less stringent credit score requirements.

CDFIs

Community Development Financial Institutions, or CDFIs, are private financial entities that are primarily dedicated to delivering responsible, affordable lending to aid low-income, low-wealth, and other disadvantaged communities. CDFIs play a significant role in generating economic growth and opportunity in some of the nation's most distressed communities. They can offer an array of financial products and services, including business loans, to help underserved communities join the economic mainstream.

CDFIs are found across the United States, and you can locate one near you by visiting the CDFI Fund's Award Database. This database provides information about CDFIs that have received financial awards or recognition from the U.S. Department of the Treasury.

In terms of requirements to work with CDFIs to get a business loan, it varies across different institutions. However, typical requirements may include a business plan, financial projections, personal and business credit history, and collateral. Some CDFIs may also require that the business operates in a specific geographic area or serves a particular community. It's recommended to directly contact a CDFI for their specific lending criteria and application process.

How to get a startup business loan with bad credit.

Navigating the world of business financing with poor credit can seem daunting, but it's far from impossible. Let's dive into the steps to get your startup funded, even if your credit score isn't quite up to par.

1. Evaluate your needs - The first step to obtaining a startup business loan is to evaluate your business needs. Understand how much money you need and what you will use it for. This clarity will help you determine the type of loan appropriate for your business.

2. Research your options - Research various loan options available for startups. Each type of loan has its own eligibility criteria and terms, including minimum credit score requirements. Compare those requirements to your current credit score to see if you may qualify.

3. Prepare your business plan - Lenders generally require a comprehensive business plan. This should include an overview of your business, details about your products or services, market analysis, organizational structure, and financial projections.

4. Gather required documentation - Gather all required documents such as financial statements, tax returns, and legal documents. The specific documents required will vary by lender, so make sure to check with them directly.

5. Apply for the loan - Once you have all the necessary documents and a complete business plan, apply for the loan. This process varies depending on the lender. It could be online or in-person.

Alternate forms of financing

In addition to a small business loan, there are alternate forms of financing that can be explored if you have a lower credit score.

Crowdfunding

Crowdfunding platforms like Kickstarter or Indiegogo allow you to raise capital through small contributions from a large number of people. This form of financing is often used by startups looking to launch new products or services, and it also offers an opportunity to validate your business idea in the market.

Venture capital

Venture capitalists invest in startups with high growth potential in exchange for equity in the company. These investments are high-risk but can provide substantial funds for your business, with the bonus of gaining experienced partners who can offer strategic advice.

Grants

Business grants are sums of money awarded by government departments, foundations, trusts, and corporations to help businesses get started or grow. The great advantage of a grant is that it doesn't need to be repaid. On the downside, competition can be intense, and the application process can be time-consuming.

Business credit cards

You will need a credit score of at least 650 to qualify for a business credit card, but if you meet that minimum requirement, a business credit card is a great way to bolster your credit even further while covering smaller, short-term expenses.

Personal loan

In some circumstances, you may qualify for a personal loan with a poor credit score. While this may not be the most ideal option, it could provide you with the funds you need to get your business off the ground. Just make sure to carefully consider the terms and interest rates before making a decision.

Every great business has to start somewhere. The founders of Apple and Amazon launched their business dreams in garages. Samsung began as a grocery store. Coca-Cola originally made its product in jugs and sold the now-famous soda for a nickel a glass at a local pharmacy.

Many businesses start from nothing before becoming something special. When the right moment arrives, securing the right funding for your startup can be pivotal in getting your business off the starting block and on the path to success.

The good news? Startup business loans exist, even if you have no revenue or a limited credit history.

While traditional lenders prefer established businesses, there are alternative financing options designed specifically for entrepreneurs starting from scratch.

Getting a startup loan with no money or revenue.

Getting funding as a brand-new startup with no money can be a challenge. The majority of small business loans have at least some minimum revenue requirements.

So, if you have the ability to wait until your business is earning some money, it could open the door to more financing options and more attractive borrowing terms. 

In the meantime, there are at least two potential ways to get a loan for your startup before it begins earning revenue.

Equipment financing

Some equipment financing lenders (though not all) are willing to work with startups. These lenders may have no minimum monthly revenue requirements and no minimum time in business requirements for applicants to satisfy.

The collateral your business is purchasing secures the loan and reduces the risk for the lender. However, you may likely need decent personal credit to qualify for this financing option, depending on the lender.

SBA microloans

An SBA microloan provides financing of up to $50,000 for small businesses. The loans are intended to support underserved communities and are distributed by nonprofit or community microlenders.

The requirements to qualify for a microloan will vary by the lender. Some will review your credit score and personal finances to qualify you for a loan while others will want to see a longer financial history for your business. While some of these lenders may not require positive business cash flow, they may still require a personal guarantee and/or collateral to secure the loan.

How to get a startup business loan with no money or revenue.

Decide how much you need

A key step in finding the loan that matches your business needs is identifying how much money you’ll need to borrow. Every lender has a different range of financing they are comfortable offering. Therefore, you probably wouldn’t search for a $5-million loan in the same place you’d search for a $5,000 loan.

Determine your timeline

Likewise, you should figure out how quickly you need the money you borrow to arrive. Some loan proceeds may be available in days or hours. For other loans, the funding process could take weeks or months.

Determine your budget

Next, crunch the numbers and see which loan gives you the best bang for your buck. There are plenty of easy-to-use loan calculators available online. So don’t worry if math isn’t your strong suit. (Note: It’s wise to compare multiple loan options to make sure you’re getting the best deal available for your small business.) 

Alternative forms of financing for your startup.

It’s not always easy to access business funding as a new startup. According to Gallup, 77% of small business owners use personal savings as a source of initial capital. Nonetheless, there are alternative ways to finance your business dreams that don’t involve potentially draining your personal bank account. 

Here are a few alternative business funding options to consider. 

• Crowdfunding - Crowdfunding is a way to raise money online for your young business—either by seeking loans from multiple investors (debt crowdfunding), asking for donations (donor crowdfunding), selling off small portions of your business (equity crowdfunding), or offering incentives for contributions (reward-based crowdfunding).
• Business Credit Cards - A business credit card could be a good financing option for startups with no revenue and no established business credit score. Depending on the type of business credit card you apply for, you may need good personal credit to qualify. But there are some options (including secured business credit cards) for small business owners with no credit or bad credit. 
• Family and Friends - Some small business owners are able to borrow money or raise investment funding from family members and friends. If you’re fortunate enough to have this option available to you, be sure to consider the risk up front. Should your business fail or if you’re unable to repay a loan from a loved one, these complications could damage important relationships. 
• Grants - For a startup, small business grants can be an appealing way to raise money since the business doesn't have to repay the money it receives. Yet with grants, you might also face a lot of competition. It can often be a challenge to stand out from other applicants where small business grants are concerned.

Are you an active-duty service member, National Guard member, Reservist, or the spouse or surviving spouse of one? Do you also want to start or grow a small business? You may qualify for the Veteran’s Advantage Program, a specialized program for SBA loans offered by the U.S. Small Business Administration (SBA). This SBA program is designed to reduce obstacles for veteran entrepreneurs and help them access affordable, secure funding.

The SBA has committed to improving the application experience, but you still need to do some things to qualify. Here’s what you should know about the process, the benefits offered by the program, and what to expect when approved.

What SBA loans are available through the SBA Veterans Advantage Program?

The SBA offers two types of financing to qualifying applicants under the SBA Veterans Advantage Program— SBA 7(a) loans, and SBA Express loans. 

SBA 7(a) loans are general purpose loans that can be used for many business needs, including working capital, real estate, and equipment. Read our guide to the SBA 7(a) program for specifics.

SBA Express loan is a smaller loan with faster approval time, and can be used for working capital and other immediate business needs. Read our guide to the SBA Express loan for maximum dollar amounts, use of proceeds, and more.

It’s important to note that there isn’t a specific veterans loan under the SBA program. Rather, prioritization and benefits are given to qualifying applicants on the existing SBA loan programs mentioned above.

Requirements for the SBA Veterans Advantage Program.

Beyond the general eligibility requirements that applicants must meet to qualify for an SBA loan, to qualify for the benefits of the Veterans Advantage Program, applicants are at least 51% owned by military members, veterans, or surviving spouses. This means they serve people who may not have success through other loan programs.

Here’s how the SBA defines an eligible veteran:

• A person who served in the active military, naval, or air service (United States Army, Navy, Marine Corps, Air Force, and Coast Guard, or reserves for any).
• Was discharged or released under conditions other than dishonorable. This includes retirement, and/or satisfactory completion of the period of active service for which the person was obligated at the time of entry.
• If a person, due to enlistment or reenlistment, was not awarded a discharge or release from the period of service at the time of completion, would have been eligible for the award of a discharge or release other than dishonorable.

Also eligible are:

• Service-disabled veterans
• Active duty military service member participating in the Transition Assistance Program (TAP)
• Spouse of a veteran, Active Duty service member, or widowed spouse of a service member who died while in service, or of a service-connected disability.

Core benefits of the SBA Veterans Advantage Program.

The core benefits of the Veterans Advantage program on SBA loans is lower costs. While SBA 7(a) loans are subject to guarantee fees, qualifying veterans, widows, or spouses enjoy waived guarantee fees on 7(a) loans under $150,000, and a smaller percentage on upfront guarantee fees for higher amounts compared to regular small business applicants.

The SBA also makes every effort to give special consideration to veterans in its loan programs. 

“SBA will prioritize processing applications from businesses that are owned by veterans when those loans are processed by SBA under non-delegated procedures. For loans processed under delegated procedures, SBA encourages Lenders to give special consideration to veterans during application processing.” - SBA SOP 50.10.8

Veterans also have the option to apply for an SBA Express loan, granting faster approval, no upfront fee, and potentially no collateral for smaller amounts. Like other SBA 7(a) loans, the Veterans Advantage loan program grants amounts of up to $5 million with repayment terms of up to 25 years (for real estate) and up to ten years for other uses.

Considering that these loan rates are very competitive compared to non-SBA loans, the program may be an excellent way for veterans to level up their businesses without incurring expensive interest costs.

Why lenders value veteran borrowers.

Veteran applicants may seem appealing for many reasons, in addition to any low financial risk or proven experience they may bring to the table. This group can be seen as having strong leadership backgrounds and a mission-driven mindset, which can lead to a disciplined financial approach, especially when running their businesses.

Well-documented military experience can help a loan application stand out and add context to the section that explains how the money will be used. That’s why it’s especially important to offer service history from the very beginning of the lender relationship.

How to prepare your application.

Knowing the SBA application process in advance gives you the chance to come fully prepared with all the information needed to complete forms quickly. Steps to take include:

1. Gather service documentation.

This includes the DD214 (Certificate of Release or Discharge from Active Duty) or equivalent. If you are still in service, provide a Statement of Service or other relevant proof. Spouses may want to ask the lender or SBA center for the exact qualification requirements.

2. Organize your supporting business documents.

These generally include:

• Three years of personal and business tax returns, profit and loss statements, balance sheets, and cash flow projections
• Copies of business licenses, registrations, and legal documents such as articles of incorporation or property leases
• A comprehensive business plan that shows market analysis, revenue projections, overall operational strategy, and how you’ll use the loan money

Not only do these documents meet the requirements of the loan application, but they also show your readiness to partner with the lender. For some business owners, it’s also a wise strategy to get last-minute updates on the health of the business and how the loan funds can be spent wisely.

3. Check your personal and business credit scores.

Then, do what you can to clean them up. If you see any errors, have them corrected by contacting the credit reporting bureau or using their online dispute resolution form. Lenders naturally prefer higher scores, so consider paying down any debt you can or resolving any outstanding collections before you apply. Begin the process a few months ahead of meeting with a lender.

How these steps secure an SBA loan under the Veterans Advantage Program.

Each part of the process helps demonstrate your eligibility for the loan you’re applying for. For example, showing your service paperwork or discharge orders lets the lender know you have service member or veteran status, one of the most important parts of qualifying for this specific SBA loan program.

Having your documentation updated, organized, and in a format that’s easy for the lender to accept and review ensures they don’t have to ask for it again. It also demonstrates your ability to follow procedures and adhere to lender follow-ups after the loan has been paid to you.

With an eye on your credit, you won’t be surprised going into the application. It’s unlikely that you’ll waste time and energy collecting all the vital info just to learn that you fall far below what’s required for a loan approval. Remember, healthy credit scores reduce underwriting risk for the lenders, and they’ll be more likely to say, “yes” when the time comes!

How to use veterans' small business financing.

The SBA lays out rules for how the money can and can’t be used. The most common approved uses include:

• Starting a business or purchasing a franchise
• Expanding an existing business to new locations or through new product lines
• Using it as working capital to pay vendors, maintain payroll, and hire new employees
• Refinance high-interest loans so you can save money on interest each month

The SBA loan funds can be flexible, but you should still be very clear in your application on how you’ll use them. Lenders want to see that you have plans for the money, as it means you’ve considered it carefully and understand the best ways to grow your unique business.

Find the right SBA loan for you.

There are many lenders out there ready to partner with veterans for business expansion and economic growth. Could one be the right option for you? While these loans level the playing field for service-connected entrepreneurs, it can still take some time to complete the process. Apply through Lendio to find the right fit, and explore your funding options well in advance of your need.

Are you a small business owner looking to buy new equipment? If so, then you may already know that purchasing equipment can be a costly endeavor. Fortunately, the Small Business Administration (SBA) offers SBA loan programs specifically designed to help small businesses purchase necessary equipment. 

In this blog post, we’ll discuss the programs available for equipment lease or purchase, basic eligibility requirements, and key differences between the loan programs to keep in mind. We’ll also discuss what repayment of these loans looks like, and where to find an SBA lender—including in the Lendio Marketplace!

What qualifies as equipment when it comes to SBA loans?

If you’re considering pursuing SBA financing to purchase or lease equipment for your business, it’s helpful to know what type of assets qualify under SBA guidelines. Typically, the SBA considers a broad range of tangible assets as machinery or equipment, particularly if they’re important for operations or efficiency.  Some examples include:

• Operational equipment - Machinery and equipment such as manufacturing equipment, construction tools, commercial ovens, or medical devices.
• Vehicles - Delivery trucks, company vans, and specialty vehicles are eligible, provided that they are used primarily for business purposes and increase operational efficiency.
• Technology - Technology infrastructure, such as computers, servers, point-of-sale systems, and software. This also includes AI-related expenses.

In order to qualify, the equipment or machinery financed must be durable, have a useful life greater than one year, and serve a defined business function. If you’re looking into SBA financing for equipment, it’s best to have a list with descriptions of the assets you want to finance or lease, to help with clarity during the application process.

Understanding SBA equipment loans: the role of 7(a) and 504 programs.

When researching SBA loans options for equipment, most opportunities will come from either the 7(a) or 504 loan programs.

SBA 7(a) loans for equipment

The SBA 7(a) loan program is the most popular SBA loan and can be used for a variety of business purposes, including acquiring and installing purchased or leased equipment.

• Maximum loan amounts: $5 million.
• Repayment terms: 10-25 years.
• Interest rates: 3-8% above base rate.

The SBA 7(a) loan program also includes the SBA Express Loan option. This subset of the program offers expedited loan approval and funding, typically within 36 hours of application submission. While the maximum loan amount is lower, capped at $500,000, the accelerated timeline can be especially beneficial for small businesses requiring immediate access to funds for equipment purchase.

SBA 504 loans for equipment.

The SBA 504 loan program is specifically designed for fixed asset financing, such as real estate, buildings, or long-term equipment purchases. 

• Maximum loan amounts: $5.5 million.
• Repayment terms: 10-25 years.
• Interest rates: typically 3% of the loan amount. 

Using 504 loan proceeds for equipment financing comes with more stringent requirements than a 7(a) loan. In order to be eligible, the asset:

• Must have a useful life of at least 10 years.
• Be at a fixed location.

In some cases, short-term financing for equipment, furniture, and furnishings is allowed where essential, and if it’s a minor portion of a 504 project.

Comparing eligibility requirements for 7(a) and 504 loans.

In order to qualify for an SBA loan, you must meet certain eligibility requirements. It might be helpful to review our complete guide to eligibility requirements for SBA loans both generally and for specific programs.

Some general eligibility requirements for both programs are:

• A for-profit business operating in the United States or its territories.
• The business must be small according to SBA size requirements
• The business cannot be an ineligible business
• Business owners must have 100% direct or indirect owners and guarantors who are U.S. citizens, U.S. nationals, lawful permanent residents, or other eligible persons.
• The business must have sought and used other financial resources, including personal assets, before applying for an SBA loan.
• The business has no owners incarcerated, on parole, or probation. Some criminal history may also prevent qualifying.
• The business must also be current on any existing government debt obligations, and can’t have defaulted on any federal debt that resulted in a loss to the government.

Both 7(a) and 504 programs have specific eligibility requirements on top of general requirements regarding uses, equity injection, economic development objectives, and net worth and income limits. These are also covered in our guide to SBA loan eligibility requirements.

How repayment works: Amortization and loan terms.

Repayment for SBA equipment loans is structured to support the day-to-day realities of small business cash flow. Both SBA 7(a) and 504 loans use amortization schedules, which break your payment into predictable monthly installments over a set term.

For 7(a) loans used to purchase equipment, the term of the loan is usually 10 years, or 15 if the useful life estimate supports this term. More involved machinery, such as farm machinery is 15 years, plus one year for installation.

For 504 loans used to purchase machinery or equipment, the minimum term of the loan is 10 years, but depending on the specific asset being financed, could be 20-25 years.

With these set terms, you’ll pay down the loan’s principal and interest gradually over the life of the loan with predictable monthly payments calculated from interest rates, term, and principal amount.

504 loans generally come with fixed interest rates, giving borrowers stable monthly payments and long-term predictability for budgeting. 7(a) loans may offer fixed or variable interest rates. Variable rates can adjust with market conditions, which is helpful if rates decrease, but potentially more expensive if they rise. If you plan to choose a variable rate, make sure you plan ahead to absorb any payment fluctuations with your monthly payment. Check our guide to see the most current SBA interest rates.

If you’d like to estimate your monthly payments and amortization schedule, visit our SBA loan calculator to get an estimate of what your monthly payments could look like.

Where to get an SBA loan to buy equipment.

SBA loans are not directly provided by the government. Instead, they are administered through partnering banks and financial institutions. This means that you can apply for an SBA loan at any bank or credit union that participates in the program.

It’s important to note that the application process for an SBA loan may be more involved compared to traditional loans. Your SBA lender will require detailed financial information and may also ask for a business plan, personal credit score, and collateral. However, with the right documentation and a solid business plan, you can increase your chances of getting approved for an SBA equipment loan.

The first step is to research and find SBA participating lenders in your area. You can also use the SBA website to search for lenders based on your location and preferred loan program. Once you’ve identified potential lenders, it’s important to compare their rates, terms, and requirements before deciding on the best option for your business.

Lendio is proud to partner with multiple SBA lenders. If you’re interested in starting your SBA journey, fill out our application to compare financing offers from multiple lenders in our network, including SBA lenders, to finance your equipment.

Accessing the right funding for your business with a shaky credit score isn’t always easy—especially if you’re interested in a business line of credit. But it’s not an impossible task either. Plenty of successful business owners start out with bad credit and still manage to qualify for financing options (business credit lines included) that help their companies grow, solve cash flow problems, and create momentum to move forward. 

The trick is to understand how lenders view risk and show them a full picture of your company’s strength (not just your credit score). Of course, credit history and credit scores matter. But lenders consider other details, too. Lenders weigh factors like your company’s annual revenue, cash flow, and time in business before deciding whether to approve your application. So, you may still be able to secure funding if you know how to position your business, document its performance, and choose the right lender and financing solution.

In this guide, learn how to get a business line of credit for bad credit and what to expect from lenders in the process. You’ll also find tips on how to strengthen your application before you apply, how to compare financing options, and how to build and manage good business credit after you open a new business credit line.

What “bad credit” means for your business.

Lenders usually define “bad credit” using your personal credit score, especially for small businesses and startups that lack well-established business credit history. FICO® Scores below 580 typically fall into the poor credit range, while most lenders consider scores between 580-669 to be fair. Any score below 600 may cause traditional banks to hesitate. But some alternative and online lenders might still approve funding if your cash flow is strong.

5 steps to get a business line of credit with bad credit.

In ideal circumstances, it’s wise to improve your credit before you apply for financing. But if you’re searching for a new business line of credit with bad credit, the following steps may help.

1. Review your credit.

Before you apply for a new business credit line (or any other small business loan), find out where your credit stands. Although no-credit-check loans exist, they’re rare. Most lenders will review your credit when you apply for a new business line of credit or business loan. So, check your credit first to avoid surprises. 

Consider reviewing all three of your personal credit reports and scores from Equifax, TransUnion, and Experian. Checking your business credit reports and scores (if you have established business credit) can be smart, too. Understand your credit score range and how it might impact your financing options. Also, look over your credit reports for any potential errors. Remember, if you discover incorrect information on a credit report, you can dispute those items with the appropriate credit reporting agency.

2. Find the right lender.

Traditional banks often cater to borrowers with higher credit scores, more time in business, and those seeking larger loan amounts. But if you have fair or bad credit (e.g., a FICO Score under 600), you’ll often have more success with online lenders or fintech companies that use revenue-based underwriting. 

After checking your credit, review the minimum requirements for a business line of credit of different lenders to help narrow down your choices. Although the credit score a lender accesses may not be identical to the one you check yourself online, it can still be a useful tool during the initial loan shopping process.

3. Prove financial stability.

Even with bad credit, steady cash flow could strengthen your financing application. Gather the last six months of business bank statements, merchant processor reports, and accounts receivable summaries. When lenders see that your business consistently generates enough income to handle its repayment terms, they may be more comfortable lending your company money. 

4. Borrow strategically.

Applying for large amounts of business capital can be tricky. Yet if you seek a realistic credit limit to meet your company’s financial goals, it could increase your approval odds.

You can use Lendio’s business line of credit calculator to estimate the amount of money your company can afford to comfortably borrow and repay. The online tool can also help you estimate monthly payment amounts and predict the credit limit your business might be eligible for on a new credit line. 

5. Consider secured financing.

If your credit score is low, applying for a secured business line of credit might be worth considering. With this option, you back your company’s credit line with collateral such as inventory, equipment, or real estate. When you pledge collateral, there’s less risk for the lender, and your chances of qualifying may improve along with the pricing and terms of your offer.

Typical credit score minimums and lender expectations.

Many online lenders accept personal credit scores as low as 600, and some may work with applicants who have scores as low as 550. Traditional banks, by comparison, sometimes require minimum FICO Scores as high as 700 and at least two years in business.

On a positive note, the Federal Reserve’s Small Business Credit Survey showed that companies with medium or high credit risk still saw approval rates around 50% for loans and lines of credit (even with less-than-perfect credit scores). So, it’s important to remember that credit isn’t the only determining factor lenders consider when you apply for business financing. 

Strong cash flow, proper documentation, and realistic borrowing terms could improve your chances of approval. When you do a good job presenting your company’s performance, show an ability to repay, and match your credit limit request to your actual business needs, you’re more likely to join the half of applicants who are successful despite credit score weakness. 

Navigating minimum credit score requirements and alternatives.

It’s true that borrowing money for your business tends to be more difficult when you have bad credit. However, there’s no such thing as a universal minimum credit score when it comes to qualifying for a business line of credit. Credit score cutoffs vary by lender and can change over time. If you’re looking for guidance, below are some general guidelines that may make it easier to shop for funding options.

Some lenders may also weigh factors like your annual revenue, time in business, profit margins, and payment history as heavily (or sometimes more heavily) than your actual credit score.

Line of credit financing options for bad credit.

A business line of credit can be one of the most flexible financing tools available to small business owners. But if you’re dealing with bad credit, you may need to get creative when it comes to exploring funding sources. On a positive note, some lenders work with borrowers who have less-than-perfect credit and use factors like cash flow, annual revenue, and more (not just credit scores) to make approval decisions.

Lenders open to bad-credit borrowers.

While approval criteria can vary, several online lenders in the Lendio marketplace work with entrepreneurs who are rebuilding their credit. The following options highlight a mix of business lines of credit that might work for borrowers with bad credit, fair credit, along with different business profiles and funding needs.

Alternative financing solutions.

If a revolving credit line isn’t the right fit for your business, there are other funding options you can also consider. Even with bad credit, some of the solutions below might help your business bridge short-term capital gaps or fund upcoming projects while you work to establish or rebuild better credit over time.

• Short-term lines of credit: This type of business credit line typically features a smaller credit limit and shorter repayment terms. Interest rates also tend to be higher, but the approval process can be easier as well—a potential relief if you’re struggling with credit challenges. Short-term credit lines can be useful for covering day-to-day expenses or short term projects, and they might also help you build business credit for the future if you manage the account responsibly. 
• SBA Microloans: An SBA Microloan is a special type of loan backed by the Small Business Administration (SBA). Eligible borrowers can finance up to $50,000, but the average loan amount is $13,000. Good credit is helpful, but not a requirement to borrow. However, it is important to demonstrate a solid business plan and community impact to qualify for funding. 
• Revenue-based financing: This type of funding offers your business fast access to cash by letting you borrow against money your company will earn in the future. It’s not technically a loan, but a type of advance against future sales or invoices. Typically, your business must repay through fixed daily, weekly, or bi-weekly payments. In addition to the rapid repayment structure, revenue-based financing can be expensive—especially if you have poor credit. 

Comparing secured vs. unsecured lines of credit.

If you decide a business line of credit for bad credit is the best path for your company, compare secured credit lines vs. unsecured credit lines before you fill out an official financing application. Both financing options have their advantages and disadvantages. The table below provides a side-by-side overview of their key differences. 

Each type of credit line can work for different goals. The key is to compare the features and figure out which option makes the most sense for your business.

Strategies to strengthen your application and increase approval odds.

Trying to open a new business line of credit (or any other type of business loan) when you have bad credit can be stressful. Yet there are steps you can take to try to improve your chances of approval now while you work on building better credit for the future. 

1. Show consistent cash flow. Good cash flow with regular deposit history and steady revenue streams can work in your favor when you apply for credit. These actions may help demonstrate financial stability and an ability to handle new debt. 

2. Organize financial documentation. Keep your financial records in order. Maintain clean profit-and-loss statements, balance sheets, tax returns, and bank statements so you’ll have everything you need for your next financing application.

‍3. Provide a detailed repayment plan. Spell out how much you plan to draw, how you’ll use the money you borrow, and when you’ll repay based on your cash flow timing. Include best and worst case projections and contingency plans. Depending on the lender, providing this document along with your application might tip the scales in your favor when you apply for a new credit line.

4. Offer collateral or a co-signer. Collateral reduces a lender’s risk when you apply for a business line of credit. A co-signer with good credit could help accomplish the same goal (though that co-signer would be accepting significant risk instead).

5. Pay existing debts on time. A history of on-time payments builds trust and could help improve your credit score over time.

‍6. Compare offers. Shop around to make sure you find the best offer available. The Lendio marketplace can help you compare financing offers without unnecessary hard credit inquiries.

Managing and building credit after opening a business line of credit.

Opening a new business line of credit with bad credit can be a major win. But your next steps matter just as much. Here’s how to manage your new credit line to build good business credit. 

• Pay on time, every time. Better yet, make a habit of paying your bill early each month. (Some business credit scoring models actually reward you for early payments.) A single missed payment has the potential to lower your business and personal credit scores. And late payments could remain on your credit reports for up to seven years. 
• Use revolving credit strategically. Borrow only what your business can afford to repay within its repayment terms (ideally by the due date on your next statement).
• Monitor your credit. Keep an eye on your business and personal credit reports on a regular basis. Watch for signs of fraud, errors, or negative activity. ‍
• Plan to refinance. Make a plan to refinance your business line of credit in the future once your credit improves. Doing so has the potential to save you a bundle on interest rates and fees.

Final thoughts.

Bad credit doesn’t have to shut the door on your financing goals. Many small business owners find ways to open business lines of credit despite past setbacks by finding the right lender and  highlighting other strengths like reliable revenue and collateral.

If you need to seek financing while you still have bad credit, treat this phase like a rebuild instead of a roadblock. Get the working capital you need now, then aim to stack early payments and other good credit management habits to put yourself in a better position to refinance later. When you show lenders how your business runs (not just what your credit score says), you have a better chance of turning a bad credit chapter into a better rate, and a stronger company in the long run.

Business lines of credit are one of the most widely used types of financing when it comes to small businesses. According to findings from the Federal Reserve Banks’ 2024 Small Business Credit Survey, 34% of small businesses surveyed regularly used or carried a balance on lines of credit.

This type of small business financing is a great solution for short-term funding and covering operating expenses. But what is it, and how exactly does it work? We’ll break down everything you need to know about business lines of credit in this guide.

What is a small business line of credit?

A small business line of credit is a flexible financing option for businesses that allows business owners access to a predetermined amount of money that they can draw from as needed. With a line of credit, the owner has access to the money, but doesn’t receive it all in a lump sum upfront. This structure makes a line of credit more similar to a credit card than a traditional term loan.

How a business line of credit works.

When you’re approved for a small business line of credit, your lender gives you access to an amount of money to use for business purposes up to the limit agreed upon. You can then use amounts you need from the line of credit at any time, up to the limit. 

Think of it like an envelope of cash the bank gives you for rainy day expenses. You don’t have to ask the bank for money every time you need it, since you’ve already been approved for that amount. You also don’t have to use all the funds if you don’t need to, giving small businesses more control over expenses, interest, and paying back on the loan.

To use the line of credit, generally you’ll transfer the funds you need into your bank account from the line of credit, or use special checks to draw directly from the line. 

Depending on the type of line of credit you have, the funds you borrow and repay may or may not become available again to borrow up to your limit. Let’s talk about these categories of lines of credit next, so you know the difference.

Revolving vs. non revolving line of credit.

Your line of credit will typically fall into two categories: revolving, or non-revolving. With a revolving line of credit, you can borrow repeatedly up to the credit limit as you repay the balance—similar to a credit card.

A non-revolving line of credit is a fixed limit. Each time you borrow from the line, and repay, that amount is not available for use again. Once you use all of the approved funding up to the limit, the account can’t be reused, and you’ll need to apply for a new loan. This makes a non-revolving line of credit more similar to a traditional loan.

Paying back a line of credit.

Business lines of credit are a short-term funding solution. Most lines of credit will need to be repaid within 1-2 years. Similar to any other loan, you’ll make regular payments on your balance towards the principal, as well as interest charges on the funds you have used. 

Read our guide to business line of credit interest rates to learn about average rates and what influences the rate you get.

The first steps in setting up your business can be exciting, and building something from an idea can be transformative. You dream of expansion, yet when you’re ready to take the next steps, you may find yourself unable to move forward due to a lack of capital and staffing bottlenecks.

It’s people that are the beating heart of any business. Yes, exciting and efficient tech has its place, such as onboarding and payroll software, but it’s your staff who implement and drive your company and its brand.

For instance, you might be ready to expand your team to support growth or improve payroll efficiency, but lack the funds to bring in the right expertise. As you remove operational bottlenecks, you may also need to invest in people who can create smoother, more consistent onboarding experiences for new employees.

If you’re at the point where you’re ready to bridge the gap between your ambitions and your current resources, keep reading to learn how a business loan for hiring could help you grow your team.

Why is hiring a strategic investment?

You may find yourself stretched too thin simply because you don’t have enough time or team members to support your growth. This, in turn, limits your bandwidth for strategic work because your focus is distilled. The more you’re able to delegate the operational tasks, such as onboarding, payroll, and so on, the more you can focus on strategic aspects of your business.

In other words, by taking on skilled hires, you’re confidently investing in boosting productivity, sales, and your customer experience. An investment in people facilitated by, for example, a business loan for hiring or a payroll loan,  can bring you long-term returns on your investment (ROI). You’re building a business that not only offers excellent products and services but is also backed up by exceptional talent, creativity, and efficiency.

How business loans can help you grow your team.

There are a number of ways in which your business growth can be boosted. For example:

• Working capital loan: a short-to-medium business loan to fund day-to-day operations and cover immediate cash flow shortfalls
• Term loan: a loan that offers a set amount of money to be repaid by a pre-agreed period of time using regular repayments‍
• Lines of credit: a more flexible option that gives you access to a pre-agreed amount of cash that can be borrowed and repaid multiple times

Any of the above options can be used to fund or create a cushion or financial buffer for expenses incurred during periodic or one-off recruitment drives, subsequent onboarding, and payroll. In addition, you may consider a business loan for any of the following hypothetical hiring scenarios:

• More sales reps to focus on growing the business by entering new markets
• More production staff to meet growing demand
• Install a marketing specialist to raise brand awareness
• New employees for a time-sensitive project

Any of the above can potentially free up leadership time to focus on strategic business development.

The beauty of a business loan is that you have the freedom to use it to cover not only upfront costs but also ongoing expenses, such as employee salaries, benefits, and software tools. Not only that, but the right business loan can give you the space to grow without disrupting your cash flow.

Covering payroll and recruitment costs.

Instead of a long-term business loan, you may benefit from something shorter-term to stabilize payroll during hiring periods or cash flow gaps.

Such a loan might, for example, cover:

• Hiring fees and job postings
• Background checks and onboarding
• Staff training and certifications
• Initial payroll run until revenue generated from hiring increases

The last point is especially significant because time-to-productivity can be weeks to months. For example, explain why this matters: new employees often take weeks or months to become fully productive. A Gallup report suggests that it can take up to 12 months for new hires to become productive.

Choosing the right financing option.

If your priority is to cover immediate hiring or payroll costs, a short-term loan can provide quick access to funds when you need them most. For companies that experience seasonal surges or ongoing recruitment cycles, a business line of credit offers flexibility by allowing you to draw funds as required to manage payroll during busier periods.

When planning for sustained growth and larger-scale hiring, SBA loans (small business loans) are often the most suitable option, offering lower interest rates and longer repayment terms.

Tip: Use cash flow projections to help gauge your repayment capacity. A well-timed loan, aligned with a clear hiring plan, can help your business unlock meaningful growth.

Avoiding common pitfalls.

Before diving in and applying for a hiring loan, it’s essential to avoid common mistakes. These include:

• Overhiring before your revenue justifies the expense
• Not being strategic about hiring, for example, hiring for roles that don’t generate or protect revenue.
• Poor record keeping. It’s essential that you keep detailed and consistent financial records to ensure your loan funds are used responsibly.

In addition, it’s important that you approach a lending institution that meets your needs. For example, According to the FDIC Small Business Lending Survey, 53% of small businesses prefer to apply for a loan online. Yet, only 29% of large banks and 8% of smaller ones have the technology to do this.

When lenders look at small business loan applications, they will assess your application. Strong workforce planning will help lenders see you as a lower risk, thereby improving future financing options.

Long-term payoff: Turning payroll into growth

Instead of viewing hiring as an expense, think of it as an investment in your business’s long-term growth and performance.

For example, imagine a small retail business that takes out a loan to hire a digital marketing manager. Within six months, that new hire drives a 40% increase in online sales through targeted campaigns that build brand visibility and customer engagement.

This hypothetical scenario shows how investing in talent through business financing can create measurable, sustainable growth. Lendio’s mission is to help small business owners turn their ambitions into reality. Start your application today to grow your team and unlock your full potential.

A healthy credit score can open doors for business growth—whether you’re applying for financing, securing better rates, or simply keeping your financial footing strong. But for many small business owners, a less-than-perfect personal credit score can be a major roadblock. 

The good news? It can be improved with time, strategy, and the right steps. We’ll cover what you need to know to improve your credit, and offer you tips on what high-impact moves you can make to start boosting your credit score today.

Do personal credit scores impact business credit scores?

Personal credit scores do affect your business credit, especially early on. Many lenders use your personal credit to evaluate your ability to manage debt, and in some cases, they’ll require a personal guarantee. That means your business's financial behavior can also impact your personal credit.

As your business matures, strong business credit habits (like on-time payments and positive tradelines) reduce the weight of your personal score. You should always expect that small business lenders will check your personal credit score on loan applications, though, so it’s important not to lose sight of maintaining your personal credit health.

Want to learn more about personal credit scores vs. business credit scores? Read our guide.

Set realistic expectations about increasing your credit score fast 

If you find yourself sitting in front of Google, searching “how do I raise my credit score in 30 days,” you’re not alone. Wanting to improve your credit score quickly in order to continue with your business goals is common. However, you will only become more frustrated if you have unrealistic expectations. There are often no overnight miracles when it comes to boosting your credit score. Many of the factors that determine your credit score rely on historical data. For example, payment history scoring can only improve with time.

However, there are strategic moves you can make over 3, 6, and 12 months that will create a noticeable bump in your overall personal credit score. By focusing more narrowly on high-impact changes to the factors that weigh heavily on your credit score, you can see noticeable improvements within 6 months.

Your starting credit score matters

Another factor to consider in how fast your credit score can improve is the score you’re starting with. Credit score ranges will have an impact on how fast your credit score can realistically improve in a short window.

If your score starts in the low 500s, aggressive action—like reducing debt and fixing errors—can lead to 50–100 point gains within six months. If you’re starting in the 600–700s, changes may be more gradual (e.g., 20–50 points) as your profile nears the top tier.

We’ll break down some realistic moves to improve your credit score fast in the next section.

Your timeline to better credit: what to do in the next 3, 6, and 12 months

If your goal is to boost your credit score quickly, you’ll want to start with the actions that will have the most impact based on how credit scores are calculated and your starting credit score.

What to focus on in the first 3 months

At this stage, focus on quick wins that move the needle fast: reduce utilization, make consistent payments, and correct any errors.

What to focus on in the next 6 months

At this stage, you can build on your previous moves by introducing new strategies to build depth and a healthy mix into your credit profile.

What to focus on in the next 12 months

At this stage, you will focus on long-term gains through consistency and diversification.

Assuming you take these actions at each stage of the timeline, and then continue applying best practices from each stage while building on the prior period's progress, these are the score improvements you might see after 12 months.

7 ways to improve your credit score

Regardless of your credit score or desired timeline for improvement, these tactical tips will help you improve your credit score, especially when combined consistently over time.

1. Pay every bill on time

Impacts: Payment History (35%)

Payment history is the single most important factor in your credit score. It shows that you can handle debt and be trusted to pay it back. When you miss payments by 30+ days, whether it’s a credit card, utility bill, or loan, it can have a negative effect on your credit report for 7 years, depressing your score. Paying your bills on time is by far the best thing you can do to rebuild less-than-stellar credit.

Tip: Set up automatic payments or calendar reminder alerts for minimums. Even one missed payment can cost you a lot of points if your score is already struggling.

2. Keep credit card balances below 10% of your limit

Impacts: Credit Utilization (30%)

While 30% is commonly advised, 10% or lower is the real sweet spot. Anything above 10% will chip away at that 30% of the overall credit score affected by credit cards:

• A 10−30% balance takes away up to 10%
• A 30–50% balance takes away 10−25%
• A 50−90% balance takes away 25–90%

Tip: If your card has a $5,000 limit, aim to keep the balance under $500 at any point in the billing cycle. This is because credit utilization resets monthly. A high balance—even if paid off later—can spike your usage rate temporarily and drag your score down.

3. Become an authorized user on someone's good account

Impacts: Length of Credit History (15%) + Credit Mix (10%)

Piggybacking on a well-managed, older account can give your score a boost, especially if your credit profile is thin or new. Have someone you know, such as a spouse or a family member, add you as an authorized user of their credit card. You’d have to ask the person to do this, and if they agree, they would add you, receive the credit card in your name linked to their account, and pass it off to you.

Some things to keep in mind: Just as you will benefit from the person’s good habits, that person can take a credit hit if you abuse the authorization you’ve been given, so treat it with respect (remember, they're still on the line for all charges). And don’t get yourself authorized on too many accounts. Credit agencies will flag that as you artificially raising your score.

Tip:  Make sure the account has low balance and a long positive payment history. And it goes without saying, only piggyback with someone you trust, and who trusts you.

4. Dispute any errors on your credit report

Impacts: All score factors (depending on nature of errors)

According to the Fair Credit Reporting Act, your credit agency is required to show you your credit report at least once a year at no charge. Take full advantage of that right.

You may have credit dings you don’t know about or that don’t belong on your credit report. You have the right to challenge them and request they be removed. 

Tip: Go through your credit report each year— and be thorough. Even a few inconsistencies can add up quickly and could be the difference between a red flag and a green light for funding.

5. Use existing accounts strategically

Impacts: Credit Mix (10%), Credit Utilization (30%), Credit History (15%)

Using dormant lines (like a personal line of credit or store card) can show active, responsible credit behavior—without opening new accounts.

Your credit history is an average of all your open and active credit accounts. A good credit history with credit—any credit—can positively impact your score. If you have a line of credit that you've not used, consider paying expected expenses with it and then paying back the line of credit with the money you already put aside in your checking account to pay those bills.

Do: Make small, recurring charges on your older cards to keep them active

‍Don’t: Open a new card just to get a discount or points. It lowers the average age of your accounts and causes a hard inquiry.

6. Limit hard credit inquiries

Impacts: New Credit (10%)

Applying for multiple credit cards or loans in a short period can lower your score—especially if you’re already rebuilding.

If you're thinking about applying for a new card and maintaining a low balance, proceed with caution: you won't want to apply for a lot of new credit at the same time. The reason for this has to do with “credit inquiries” or "credit checks" (also called a "credit pull"), which is the term used when a lender, broker, partner, or vendor checks your credit score.

A “hard inquiry” is what you want to avoid when trying to rebuild credit because each one negatively impacts your credit score. The less credit you apply for, the fewer hard inquiries your credit score will show.

Tip: Be strategic. Rate shop within 14–45 days if applying for loans (FICO treats this as one inquiry). Otherwise, space out applications and avoid “just browsing” preapprovals that trigger hard pulls.

7. Avoid spending behavior that signals risk

Impacts: Lender perception and soft underwriting

Some lenders use algorithms that analyze changes in your spending behavior. Large purchases (weddings, legal fees), sudden drop in payments, or maxing out credit cards can be red flags even if you pay on time.

Tip: Keep consistent, modest usage. Avoid signalling financial instability when you’re rebuilding credit.

Key Takeaways: How to Improve Your Credit Score

• Focus on what matters most. Your payment history and credit utilization make up 65% of your credit score—prioritize on-time payments and keeping balances low.
• Start where you are. The lower your starting score, the more dramatic gains you may see early on. But everyone benefits from consistent credit-building habits over time.
• Think in timelines, not overnight fixes. Small, strategic moves over 3, 6, and 12 months can lead to meaningful credit improvements—especially if you keep building on what’s working.
• Stay consistent. Credit improvement is a marathon, not a sprint. Monitor your progress, avoid setbacks, and stay focused on long-term financial health.

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