how to get a business loan with bad credit
Finances Credit

How To Get a Business Loan With Bad Credit

Anne Shaw
Anne Shaw,Freelance Writer
Anne Shaw
Freelance writer, covering workforce trends and small business.
LinkedIn Profile
08/26/2025 12 min read
Wondering how to get a business loan with bad credit? See how lenders approach business loans for bad credit, and get tips for finding funds. Learn more.
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Key Takeaways

  • You can still get a business loan with bad credit, but you might have to pay more and requirements may be stricter.
  • Showing strong business plans, steady income records and offering something valuable like equipment can help you get approved for business loans if your credit isn’t strong.
  • There are many loan types for bad credit, like short-term loans, microloans and business credit cards.
Many small business owners turn to loans to help get their business off the ground or to finance an equipment purchase for an established company. But some small business owners must overcome a bad credit score in order to secure a loan.
 
The fact is, it’s tough to qualify for a business loan with bad credit. Experts suggest improving your credit score before seeking a business loan, but that takes time — time you might not have. Read on to learn how to get a business loan with bad credit.
 

Can You Get a Business Loan With Bad Credit?

business loans for bad credit
Yes. It’s possible for small business owners with poor credit to get a business loan. Just keep in mind that lenders will see you as a risky borrower, so your loan options will likely come with higher interest rates, shorter payback periods and stricter terms.
 
Consider ways to reduce your appearance of risk prior to shopping for loans. Get your books in order so you can share clear financial records with potential lenders, and prepare a business plan to show them how you would use the money. If possible, offer to make a large down payment or gather a list of potential collateral.
 

Can I Get a Business Loan With a 500 Credit Score?

In general, you need a FICO score of at least 530 to qualify for a business loan. Some alternative lenders offer bad credit business loans to business owners with a credit score as low as 500, provided they meet other requirements. However, other lenders set the bar closer to 600. Keep in mind that your interest rates are likely to be much higher (potentially up to 40%) than is typical for borrowers with a good credit score.
 

How To Get a Small Business Loan With Bad Credit

The small business loans process works slightly differently if you don’t have excellent credit. In addition to your financial history, lenders may want to assess other factors like your years in operation, cash flow stability, revenue thresholds, collateral availability and general industry risk.
 

Considerations for Those Seeking Startup Business Loans With Bad Credit

It can be challenging to find a lender that offers financing to new businesses with bad credit, so it’s essential that you demonstrate viability by documenting realistic projections, a clear use of funds and tight controls over expenses. However, you should expect a few trade-offs for approval. For example, startup loans for new businesses often come with shorter repayment terms, higher interest rates or stricter collateral requirements. Generally, SBA-backed microloans and community lenders tend to offer lower interest rates than private options.
 

Factors Lenders Consider Before Issuing Business Loans for People With Bad Credit

Lenders look at several factors when evaluating applicants for business loans. Understanding lenders’ considerations can help you get organized and demonstrate that your business is creditworthy despite the risk.
 

Credit Score

When applying for business loans, two types of credit scores matter: your business credit score and your FICO score.
 
Your FICO score is tied to your Social Security number and can range from 300 to 850. It rates your personal credit based on your credit history. This includes your payment history, credit utilization (how much available credit you’re currently using), length of credit history, credit mix and inquiries for new credit.
 
Three credit bureaus report on your credit: TransUnion, Experian and Equifax. You can request a free copy of your credit report from all three agencies on AnnualCreditReport.com. If you find any mistakes, make sure to correct them. Your personal credit score can factor into your business credit score.
 
Your business credit score is tied to your employer identification number and can range from one to 100. It gets calculated by Equifax, Experian and Dun & Bradstreet, all of which create business credit reports using their own methodology.
 

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is another indicator of your financial health. To find both your personal DTI and your business DTI, start with your cash flow report to see the full picture of your incoming and outgoing funds. Add all your monthly debt payments and divide that total by your average monthly income before taxes.
 
If your DTI is lower than 36%, then you will be a more attractive applicant to lenders. That said, most experts say that a DTI below 36% is ideal, but a ratio below 50% is acceptable.
 
If your DTI is above 50% and you have bad credit, start paying down your balances to improve your chances at securing a bad credit business loan.
 

Cash Reserves and Down Payment

Another way to improve your chances at qualifying for a business loan is by keeping enough cash on hand to cover several months of expenses. Your business’s cash reserves function the same way as an emergency fund for your personal finances.
 
Keeping cash reserves signals to lenders that your business could still cover loan repayments if your income slows down or if you’re hit with unexpected expenses. Your cash reserves can also help you pay a larger down payment on a loan, if necessary.
 
Six months’ worth of expenses in your cash reserves is ideal but aim for at least three months if you’re just getting started.
 

Collateral

Presenting collateral is another strategy small business owners with bad credit can use to secure a business loan. Common business collateral includes real estate, vehicles, stocks, inventory and business equipment. When you use collateral to qualify for a loan, lenders may be more comfortable lending you money.
 

Annual Revenue Requirements

Many lenders’ eligibility requirements include a certain amount of annual revenue. Most tend to require businesses to have at least $100,000 in annual revenue. Lenders view these businesses as more likely to make their monthly payments.
 
Some lenders and some types of loans, like equipment financing, don’t require a minimum annual revenue, but it’s still an important factor to consider for small business owners with bad credit.
 

Years in Business

Typically, the longer you’ve been in business, the easier it will be to get a business loan. That’s why it can be a challenge to get startup business loans with bad credit. Loan opportunities may expand once you surpass five years — the time period during which most failed businesses close their doors.
 

Business Plan

Providing a professional business plan can give potential lenders more confidence in you and your business. Explain where your business fits into its industry, how you’ll market your products or services and your sales strategy.
 
Within the plan, introduce your leadership team. Address potential red flags by being upfront about current weaknesses and share your realistic plan for overcoming them.
 

What Are the Types of Business Loans for Bad Credit?

small business loan
Small business owners with bad credit scores can pursue several different avenues for securing credit. Here are eight types of bad credit business loans and financing options.
 

Short-term Loans

Short-term business loans share many similarities with conventional loans. The difference lies in the length of their terms. With short-term loans, the payback period typically lasts a maximum of three years, so lenders look more closely at your immediate ability to pay a loan back rather than your credit history. This makes short-term business loans a potential option for small business owners with bad credit but good cash flow and decent cash reserves.
 

Hard Money Loans

Small business owners with valuable collateral may be able to qualify for hard money loans despite their bad credit. That’s because hard money loans are backed by collateral rather than credit history. Just remember the potential drawbacks – if you can’t make your payments, your lender can take possession of your collateral. For instance, a manufacturer who uses their machinery as collateral for a hard money loan must be prepared to let their lender take possession of this collateral if they default on loan payments.
 

Invoice Financing

Also known as invoice factoring, this type of financing lets business owners obtain a loan based on their outstanding invoices. Essentially, they sell their accounts receivable invoices at a discount to a lender that offers them a portion of the funds as a lump sum.
 
Here’s an example: Let’s say you’ve issued an invoice for $5,000. If you use invoice factoring, you could sell the value of this invoice for just $3,500 to $4,500, but you can access those funds immediately. In this case, the lender is more concerned with your customer’s ability to pay than your business’ credit. When your customer pays the invoice, your lender keeps the full amount. This type of financing is best used only for a short period of time, during high growth or seasonal slowdowns.
 

Microloans

The Small Business Administration (SBA) provides microloans administered by nonprofit lenders. Typically, this type of business loan goes up to $50,000 and helps small business owners gain working capital for inventory, building improvements, furniture or equipment. When choosing an SBA loan, business owners with bad credit may want to shop for microloans as they’re more likely to qualify with nonprofit lenders.
 

Business Credit Card

If you have a poor credit score, you may still qualify for a business credit card, though your annual percentage rates are likely to be higher and your credit limit will likely be lower.
 
If you use your card wisely and pay off the balance each month, you can eventually increase both your card’s credit limit and your business credit score. Building a credit history on a business card can also help you separate your personal and business credit histories. Depending on which business credit card you use, your company may also enjoy several additional business credit card benefits.
 

Equipment Financing

Small business owners with bad credit have a better chance of qualifying for equipment loans than typical business loans. That’s because the equipment they finance can act as collateral for the loan.
 
Many equipment loans come with fixed interest rates and a fixed payment schedule, so financing your equipment purchases or leases with this type of loan can also give you a more predictable and stable repayment experience.
 

Business Line of Credit

This type of financing operates like a hybrid of short-term business loans and business credit cards. In this case, a lender determines the amount of money they’re comfortable offering to your business. They keep this pool of funds open, letting you draw from it as needed. As a business owner with bad credit, you’ll pay a higher interest rate, but you only pay it on the amount you borrow, rather than the full amount of credit available.
 

Merchant Cash Advance

Considered by many to be the financing option of last resort, merchant cash advances are based on your typical sales volume and offer a quick way to access capital. A lender will assess your records and offer you a lump sum. Moving forward, you’ll pay it back with a portion of your credit card and debit card sales in addition to other fees. Like payday loans, merchant cash advances tend to be a more expensive form of borrowing money.
 

Alternative and Online Lenders

It may be easier to secure financing through non-traditional lenders that focus less on your personal credit history and more on current revenue, industry type and overall business health. While interest rates may be higher, alternative and online lenders often have a faster application process, offering the potential to secure maximum funding in days rather than weeks. For eligible borrowers, this could be an attractive option when other loan programs prove inaccessible.
 

Working Capital Loans

Working capital loans are designed to cover everyday operating expenses like payroll, rent, utilities and seasonal inventory rather than startup costs, investments in property or other fixed assets. This type of business lending can help you bridge gaps when cash flow is tight without digging into your personal savings. Maintaining accurate cash flow projections can increase your chances of approval, as lenders want to see that you can manage and repay the debt even with lower credit scores.
 

How To Get a Business Loan With Bad Credit: 7 Essential Steps

You’ll have less trouble qualifying once you know what traditional banks and other lenders are looking for. Here’s a step-by-step breakdown on how to get a business loan with bad credit by doing your research, matching your needs to the right financing option and getting ahead with preparation.
1. Determine the Type of Loan You Need
Your first task is to estimate how much capital you need and how it will be used. Only then can you thoroughly research your options, which typically include SBA-backed loans, microloans, merchant cash advances, invoice financing or alternative lenders.

However, be aware that new business owners and those with poor credit ratings may not meet the unique eligibility requirements for certain products.
2. Review Your Financial Profile Lenders will assess your business’ potential through revenue history and industry outlook. So, clear up as many unpaid invoices as possible, but be transparent about your credit requirements, debt-to-income ratio and available collateral. Several lenders will still consider granting small business loans for bad credit applicants who are well-prepared and realistic about their funding needs.
3. Strengthen Your Application You can improve your appeal to lenders by preparing detailed financials that go beyond the basic information on your tax returns and business licenses. Additional documentation showcasing your repayment ability might include proof of business credit-building, cash flow projections, cosigner guarantees or the offer of collateral value.
4. Research and Compare Lenders Compare options from traditional banks, credit unions, CDFIs and other lenders. Assess the approval process, credit requirements, interest rates, repayment terms, fees and technical assistance offered by each. It’s also a good idea to research the lender’s reputation by reading reviews from previous applicants and considering their track record for customer service.
5. Prepare Your Business Plan A lender-ready plan clearly outlines your market, startup costs (if applicable), sales strategies and potential for growth. A strong plan demonstrates that you understand your industry. So be sure to include an executive summary, detailed market analysis and ample financial projections with your funding request, along with specific descriptions of how you’ll use the funds.
6. Gather Required Documentation
Having everything organized helps speed up the approval process. Here’s a checklist of the essential documentation you’ll need to prepare:
 
  • Personal bank statements
  • Business bank statements
  • Tax returns
  • Business licenses
  • Cash flow forecasts
  • EIN
  • Collateral details
  • Personal guarantee/UCC lien information.
7. Submit and Review Your Application Review and compare any loan offers you receive carefully to ensure a clear understanding of your specific case and business purposes. Evaluate the terms and contact each lender directly to ask clarification questions and verify understanding of rates, fees and repayment structure before signing.

Tips for Improving Your Chances of Getting Approved

Even if you have a less-than-perfect credit score, the right preparation and attitude can significantly improve your odds of approval. Here’s a list of top tips and best practices for how to get a business loan with bad credit:
 
  • Keep accurate, up-to-date financial statements and cash flow projections.
  • Separate your personal and business finances as much as possible to avoid confusing lenders.
  • Be transparent about your financial history and prepared to explain challenges and solutions.
  • Reduce existing debt to improve your debt-to-income ratio and boost your appeal.
  • Build business credit by paying vendors on time and maintaining low credit utilization.
  • Submit a detailed business plan that outlines a clear path forward and demonstrates a solid understanding of your market.
  • Offer collateral assets, apply with a cosigner or offer a personal guarantee backed by a UCC filing to strengthen your application.
With the right mix of preparation and persistence, you can turn a challenging credit profile into a compelling case for funding.
 

Pros and Cons of Bad Credit Business Loans

While bad credit business loans are necessary for some business owners, it’s best to use them only when necessary. As you pay them off, work to improve your credit score so your business can qualify for more favorable loan terms in the future.
 

Advantages of Bad Credit Business Loans

  • Your business can access funds for immediate needs.
  • You can use them to repair your credit score.

Drawbacks of Bad Credit Business Loans

  • Higher interest rates make it more expensive to borrow money.
  • You’ll need to allow a deeper audit of your business finances.
  • They typically offer lower loan amounts than traditional loans.
The bottom line? Bad credit business loans can be a lifeline, but they’re best used as a steppingstone. The goal is to leverage the funding to stabilize operations and position your company for future financing with better rates, longer terms and more flexibility.
 

Choosing the Right Lender

Start by looking for lenders that offer your preferred types of financing. Research their eligibility requirements to understand how they determine whether applicants qualify for a loan.
 
Once you have a short list of options, narrow down your choices by looking at each lender’s specific offerings, including the terms and the cost of borrowing money. Then assess their customer service based on how they’ve treated you and on what you read in online reviews.

FAQ on Bad Credit Business Loans

Ultimately, that depends on your business profile, but options like merchant cash advances, invoice financing and certain online lenders tend to have more flexible requirements. However, these products may come with higher interest rates, so it’s essential to weigh speed against cost.
Possibly. While poor credit may limit your options through banks, alternative lenders that work with small businesses may still approve your LLC if you can demonstrate stable revenue, collateral and a strong business plan.
Not necessarily. Regardless of business structure, lenders will still look at your company’s financial health, credit history and time in operation. However, an LLC can add legitimacy and help separate personal and business liabilities, which may improve your appeal.
Yes, but expect enhanced scrutiny, even from SBA-backed microloans and community lenders that are often more willing to work with early-stage businesses. Startups are more likely to require personal savings, collateral or co-signers to secure financing.
There’s no fixed minimum, but most lenders prefer a FICO score of 620 or higher.
Your business must meet SBA size standards, operate for profit in the U.S. and demonstrate the ability to repay. Lenders will review your credit history, financial statements and business plan before approval.

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