Best Business Loans For Bad Credit

What is a bad credit score?

bad credit scoreA bad credit score is generally defined as a FICO score below 600. Credit scores are numerical representations of an individual’s creditworthiness, with scores ranging from 300 to 850.

They are calculated based on various factors including payment history, amounts owed, length of credit history, new credit, and types of credit used.

A lower score indicates higher risk to lenders, often resulting from missed payments, high debt levels, or other financial mismanagement. This can make obtaining loans, credit cards, or even favorable interest rates more challenging.

Businesses, much like individuals, can also have their own credit scores that impact their ability to secure financing. Business credit scores are completely seperate from the business owners personal credit score.When a business has a poor credit score, it reflects a history of financial instability or difficulty in meeting credit obligations, making it harder to access capital for growth and operations.

What are business loans for bad credit?

Bad credit business loans are financing options specifically designed for businesses with low credit scores. These loans are tailored to help businesses that might not qualify for traditional loans due to their business or personal credit history.

Business Loans For Bad CreditLenders offering bad credit business loans understand the unique challenges faced by these businesses and are willing to take on higher risk in exchange for potentially higher interest rates and more stringent terms.

These loans can come in various forms, including:

  • short-term loans
  • merchant cash advances
  • invoice financing
  • secured loans where the business pledges assets as collateral


While these loans can provide much-needed capital, they often come with higher costs and require careful consideration to ensure they align with the business’s financial capabilities and goals.

How do business loans for bad credit business owners work?

These loans come in various forms, each with its own requirements and terms tailored to mitigate the risk taken on by lenders.

Here’s a deeper look into the types of bad credit business loans and their specific requirements:

1. Short-Term Loans

short term loans

Short-term loans are one of the most common types of bad credit business loans. These loans are typically repaid within a year and offer a quick infusion of cash to cover immediate needs such as inventory purchases, payroll, or unexpected expenses.

Lenders of short-term loans often focus less on credit scores and more on the business’s cash flow and ability to repay the loan within the short term.

Requirements for these loans usually include a minimum credit score, though this threshold is generally lower than that of traditional loans, as well as proof of consistent revenue and operational history.

Depending on the lender, these loans can be a source of fast funding.

2. Merchant Cash Advances (MCAs)

Merchant cash advances provide businesses with a lump sum of cash in exchange for a percentage of future sales. This type of financing is particularly useful for businesses with high credit card sales. MCAs are easier to obtain for businesses with bad credit because the lender’s primary concern is the volume of credit card transactions rather than the credit score.

Requirements typically include a minimum monthly credit card sales volume and a business bank account. Repayment is made daily or weekly as a fixed percentage of credit card sales, making it crucial for the business to maintain consistent sales to manage the repayment schedule effectively.

This type of financing can also provide fast funding for a business owners.  Typically from application to funding can be 2-5 days.

3. Invoice Financing

invoice financingInvoice financing allows businesses to borrow against their outstanding invoices. This type of loan is beneficial for companies that have long accounts receivable cycles but need immediate cash flow. Lenders advance a portion of the invoice amount, usually around 80-90%, and the business receives the remaining balance minus fees once the invoice is paid.

The primary requirement for invoice financing is the quality of the business’s accounts receivable. Lenders will assess the creditworthiness of the business’s customers rather than the business itself, making it a viable option for businesses with bad credit but reliable clients.


Invoice financing is also called factoring and A/R financing.  Initially setting up this type of financing can take 1-2 weeks. During that time, the finance company does their research on the business owners clients.  But once you have set it up, its an extremely fast funding method.

4. Secured Loans

Secured loans require the business to pledge assets such as equipment, real estate, or inventory as collateral. These loans are less risky for lenders since they have the right to seize the pledged assets if the business defaults on the loan.

Requirements for secured loans include a detailed list of the business’s assets, their value, and proof of ownership.

While these loans can be a good option for businesses with bad credit, it is crucial to consider the risk of losing valuable assets if the loan cannot be repaid.

5. Equipment Loans

equipment loans

These are loans that can only be used to purchase equipment for a business.  They allow lower credit scores because they put a lien on the equipment purchased. If the business owner fails to make a payment they will simply repossese the equipment.

If you don’t qualify for an equipment loan, you may want to look into equipment leasing.  Equipment leasing allows you to rent to own the equipment and has very flexible credit requirements.

Equipment loans and leasing are also a viable source of startup funding .  Many equipment financing companies will have financing programs for startup businesses.

6. Equipment / Real Estate Sale Leaseback

This is a financing option for business owners that may own either equipment or real estate free and clear of loans.  Or they may only have a few more payments left until they own it.  The financing company will take a first or second position on a new loan using the equipment or real estate as collateral.

Many small businesses who have multiple MCA loans out have found that this type of financing quickly gets them out of the deep hole they have done for themselves using MCA loans.  Instead of weekly payments they are now having to pay only one time a month and a lot of times they are saving a lot of money on the interest they are paying since the interest rate charged is lower than their merchant cash advance loan.

Overall, bad credit business loans provide essential financing solutions for businesses struggling with poor credit scores. However, it is important for business owners to carefully evaluate the terms, interest rates, and repayment conditions associated with these loans to ensure they align with their financial capabilities and goals.

Who should get a bad credit business loan?

bad credit business loanBusiness owners with lower than average credit scores. This type of loan is suitable for entrepreneurs who have faced financial setbacks such as missed payments, high debt levels, or bankruptcy, yet have a viable business model and steady cash flow.

These business owners might find it challenging to qualify for traditional loans due to their credit history, making bad credit business loans a viable alternative.

Additionally, those who require immediate funding for urgent expenses, such as inventory purchases, payroll, or unexpected repairs, can benefit from bad credit business loans.

These loans can provide the necessary liquidity to keep operations running smoothly during cash flow gaps. Entrepreneurs with a clear plan for using the funds effectively and a strategy for repaying the loan despite higher interest rates are the best candidates for these financing options.

By demonstrating consistent revenue and a commitment to improving their creditworthiness, they can leverage business loans for bad credit to stabilize and grow their businesses.

What kind of fees and interest rates are charged by bad credit business loan providers?

Bad credit loan providers often charge higher fees and interest rates to compensate for the increased risk associated with lending to businesses with poor credit scores. These costs can vary significantly depending on the type of loan, the lender, and the specific financial circumstances of the borrower.

interest ratesInterest Rates

Interest rates for bad credit business loans are generally higher than those for traditional loans. While standard business loans might have interest rates ranging from 4% to 10%, bad credit business loans can have rates from 15% to 30% or even higher.

The exact rate depends on factors such as the lender’s policies, the business’s financial health, the loan amount, and the repayment terms.

For example, merchant cash advances typically do not have a traditional interest rate but use a factor rate, which can translate to an effective interest rate significantly higher than other forms of financing.


In addition to higher interest rates, bad credit loan providers often impose various fees. Common fees include:

  • Origination Fees: Charged at the beginning of the loan process, typically ranging from 1% to 5% of the loan amount.
  • Processing Fees: Cover the administrative costs of processing the loan application.
  • Late Payment Fees: Applied if the borrower misses a payment deadline, which can further strain a business’s finances.
  • Prepayment Penalties: Charged if the borrower pays off the loan early, as lenders lose out on expected interest income.
  • Factor Rates: Used primarily in merchant cash advances, factor rates are a fixed multiplier applied to the loan amount, resulting in a lump sum repayment that can be costly.

Pros and cons of bad credit business loans


pros of bad credit business loans1. Access to Capital:  Provides access to capital for businesses that might otherwise be unable to secure financing. This can be crucial for maintaining operations, managing cash flow, and seizing growth opportunities.

2. Quick Approval and Funding: Many lenders offering bad credit business loans understand the urgent needs of businesses with poor credit scores. As a result, they often provide faster approval and funding processes compared to traditional loans. This can be particularly beneficial in emergency situations where immediate cash is required.

3. Flexible Terms: Some bad credit business loans come with flexible repayment terms and structures. For example, merchant cash advances are repaid as a percentage of daily sales, which can be more manageable for businesses with fluctuating revenues.

Cons of bad credit business loans

1. High Interest Rates and Fees: The most notable downside of bad credit business loans is the high cost associated with them. Interest rates are significantly higher than those for traditional loans, and lenders often impose various fees, such as origination, processing, and late payment fees. This can make the overall cost of borrowing substantially higher.

cons of bad credit business loans2. Shorter Repayment Terms: Many bad credit business loans have shorter repayment terms, which can lead to higher monthly or daily payments. This can strain a business’s cash flow, especially if the business does not generate sufficient revenue to meet these obligations.

3. Collateral Requirements: Some bad credit business loans, particularly secured loans, require the business to pledge assets as collateral. This can put the business at risk of losing valuable assets if it is unable to repay the loan. For businesses already in a precarious financial situation, this added risk can be particularly concerning.

4. Impact on Cash Flow: Repayment structures like those in working capital loans .which take a percentage of daily sales, can significantly impact a business’s cash flow. If sales are lower than expected, the constant repayment can hinder the business’s ability to cover other essential expenses.

While bad credit business loans can provide crucial funding for businesses with poor credit, they come with higher costs and risks that need careful consideration. Business owners should weigh the pros and cons to determine if these loans are a viable solution for their financial needs.

Alternatives to bad credit business loans

Business owners with bad credit have several alternative financing options that can provide the necessary funds without the high costs and risks associated with bad credit business loans. Here are some of the most viable alternatives:

1. Microloans

microloansMicroloans are small loans, typically offered by non-profit organizations, community lenders, or government programs, aimed at helping small businesses and startups. These loans often have more lenient credit requirements and offer lower interest rates compared to traditional bad credit business loans.

Microloans can be used for various purposes, including working capital, inventory, and equipment purchases. The Small Business Administration (SBA) Microloan Program is one notable example, providing loans up to $50,000.

2. Business Credit Cards

Business credit cards can be a useful alternative for businesses with bad credit, especially if they need smaller amounts of financing for short-term needs. While credit cards generally have higher interest rates than traditional loans, they offer flexibility and can help build credit if managed responsibly. Some credit card issuers are more willing to work with businesses that have lower credit scores and may offer secured business credit cards that require a cash deposit as collateral.

3. Crowdfunding

Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe allow businesses to raise money from a large number of people, often in exchange for early access to products, equity, or rewards. Crowdfunding can be an excellent option for businesses with innovative ideas or products that can capture public interest. It also does not typically require a credit check, making it accessible for those with bad credit.

peer to peer lending4. Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms connect borrowers directly with individual investors who are willing to fund loans. These platforms often have more flexible credit requirements compared to traditional banks. P2P loans can be a good alternative for businesses with bad credit, as they can offer lower interest rates and more favorable terms than typical bad credit business loans. Popular P2P lending platforms include LendingClub and Prosper.

5. Vendor Financing

Some suppliers and vendors offer financing options to their customers, allowing businesses to purchase goods or services on credit. This type of financing can be especially useful for businesses that need to acquire inventory or equipment. Vendor financing often comes with more flexible terms and may not require a stringent credit check, as the vendor has a vested interest in the success of the purchasing business.

6. Invoice Factoring

Invoice factoring involves selling unpaid invoices to a factoring company at a discount in exchange for immediate cash. This allows businesses to access funds tied up in accounts receivable without taking on additional debt. The factoring company then collects the payments from the customers. Since the focus is on the creditworthiness of the customers rather than the business, invoice factoring can be an effective solution for businesses with bad credit.

7. Personal Loans

personal loans

In some cases, business owners may consider applying for a personal loan to fund their business needs. Personal loans can be easier to obtain for individuals with bad credit than business loans, and they can be used for various purposes, including business expenses. However, it’s important to understand that using personal credit for business purposes can put personal assets at risk if the business cannot repay the loan.

Exploring these alternatives can provide business owners with bad credit a range of options to secure the funding they need while potentially avoiding the high costs and risks associated with traditional bad credit business loans.

Where to get a bad credit business loan

Business owners with bad credit can apply for loans through various lenders that specialize in offering financing to those with less-than-ideal credit scores. Here are some common places to apply for a bad credit business loan:

online lenders1. Online Lenders

Online lenders often provide more flexible lending criteria and quicker application processes than traditional banks. Some popular online lenders that offer bad credit business loans include:

  • OnDeck
  • BlueVine
  • Kabbage
  • Fundbox

These lenders typically have streamlined application processes that can be completed entirely online, with faster approval and funding times.

2. Credit Unions

Credit unions are member-owned financial institutions that often provide more personalized service and may be more willing to work with businesses with bad credit. They may offer lower interest rates and more favorable terms compared to traditional banks.

3. Community Development Financial Institutions (CDFIs)

CDFIs are local organizations dedicated to providing financial services to underserved communities. They often offer loans with more flexible terms and lower credit requirements. CDFIs can be a valuable resource for small businesses struggling with bad credit.

4. Alternative Lenders

Alternative lenders, including peer-to-peer lending platforms and merchant cash advance providers, cater to businesses that may not qualify for traditional financing. These lenders assess other factors, such as cash flow and sales volume, rather than relying solely on credit scores.

Small business financing

Paperwork Required for a Bad Credit Business Loan

When applying for a bad credit business loan, lenders will require specific documentation to assess the business’s financial health and ability to repay the loan. While the exact requirements may vary by lender, the following documents are commonly requested:

1. Business Plan

A comprehensive business plan outlines the business’s objectives, strategies, and financial projections. It helps lenders understand the purpose of the loan and how the funds will be used to achieve business goals.

2. Financial Statements

Financial statements provide a snapshot of the business’s financial health. Lenders typically require:

  • Balance Sheet: Shows the business’s assets, liabilities, and equity.
  • Income Statement (Profit and Loss Statement): Details the business’s revenues, expenses, and profits over a specific period.
  • Cash Flow Statement: Highlights the business’s cash inflows and outflows, demonstrating its ability to generate cash and meet obligations.

3. Bank Statements

Recent bank statements, usually from the past three to six months, are required to verify the business’s cash flow and financial stability. These statements help lenders assess the business’s daily operations and ability to manage funds.

4. Tax Returns

Both personal and business tax returns for the past two to three years may be requested to provide a comprehensive view of the business’s financial history and the owner’s personal financial situation.

5. Credit Report

While lenders specializing in bad credit loans are more lenient, they will still review the business’s and owner’s credit reports to understand the credit history and identify any significant issues.

6. Legal Documents

Lenders may require various legal documents to verify the business’s legitimacy and operational status, including:

  • Business licenses and permits
  • Articles of incorporation or organization
  • Partnership agreements (if applicable)
  • Contracts with suppliers or clients

7. Collateral Documentation

For secured loans, lenders will request documentation of the assets being pledged as collateral, such as property deeds, equipment titles, or inventory lists.

8. Personal Identification

Proof of identity for the business owner(s), such as a driver’s license or passport, is typically required to complete the application process.

By preparing these documents in advance, business owners can streamline the application process and improve their chances of securing a bad credit business loan.

Frequently asked questions about bad credit business loans:

What is the minimum credit score for business loan?

The minimum credit score required for most business loans varies depending on the lender and the type of loan. Traditional banks and lenders typically require a credit score of at least 680 to 700 for small business loans. However, alternative lenders, online lenders, and certain government-backed loans may have lower credit score requirements, often ranging from 500 to 650.

Minimum Credit Score Requirements for Bad Credit Business Loans

For bad credit business loans specifically designed for borrowers with poor credit scores, the minimum credit score requirements are generally lower than those for traditional loans. While specific requirements vary by lender, borrowers with credit scores as low as 500 or even lower may still qualify for bad credit business loans.

These loans are designed to help businesses that may not meet the credit score requirements of traditional lenders but have other factors, such as steady cash flow or valuable assets, that make them eligible for financing.

Can I get a business loan if I personally have bad credit?

Yes, you can still get a business loan even if you have a low credit score. Many lenders offer business loans for bad credit. but you need to be aware that some of these lenders are predatory lenders   Meaning they charge a lot in fees and above average interest rates.

However, they can provide a valuable source of funding for businesses that may not qualify for other types of financing.

When applying for a business loan with a low credit score, lenders will consider other factors in addition to your credit score, such as your business’s revenue, cash flow, and overall financial health. Providing a strong business plan, demonstrating steady revenue, and offering collateral can help strengthen your loan application and improve your chances of approval.

It’s important to carefully review the terms and conditions of any loan offer, especially if you have a low credit score, to ensure that it is a viable option for your business and that you can comfortably manage the repayment.

What is the easiest SBA loan to get?

The easiest SBA loan to get approved for is typically the SBA Microloan program. This program provides small, short-term loans to small business owners for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery, or equipment.

The maximum loan amount is $50,000, with an average loan size of around $13,000.

While the SBA Microloan program has relatively lenient requirements compared to other SBA loan programs, approval is not guaranteed. It’s important to carefully review the requirements of the program and work closely with the intermediary lender to ensure that you meet all the criteria before applying.

What disqualifies you from getting a business loan?

Several factors can disqualify you from getting a business loan, including:

  1. Poor Credit History: A history of late payments, defaults, or bankruptcies can significantly impact your ability to qualify for a business loan, especially with traditional lenders.
  2. Insufficient Cash Flow: Lenders want to see that your business generates enough cash flow to repay the loan. If your cash flow is inconsistent or insufficient, lenders may be reluctant to approve your loan application.
  3. Lack of Collateral: Some lenders require collateral to secure the loan. If you don’t have sufficient assets to pledge as collateral, you may be disqualified from getting a loan.
  4. Limited Business History: New businesses with a limited operating history may find it challenging to qualify for a loan, as lenders often prefer to lend to businesses with a proven track record of success.
  5. High Debt-to-Income Ratio: If your business already has a high level of debt relative to its income, lenders may view you as a higher risk and disqualify you from getting a loan.
  6. Incomplete or Inaccurate Documentation: Providing incomplete or inaccurate information on your loan application can lead to disqualification.
  7. Legal Issues: Legal issues such as pending lawsuits, tax liens, or judgments against your business can disqualify you from getting a loan.
  8. Industry Risk: Some industries are considered higher risk by lenders, and businesses operating in these industries may find it more challenging to qualify for a loan.