How to Get a Business Loan With Bad Credit
How to Get a Business Loan With Bad Credit

How to Get a Business Loan With Bad Credit

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How to Get a Business Loan With Bad Credit : Getting a small business loan with bad credit may seem daunting, but it is possible. This comprehensive guide covers steps to improve your credit score, finding alternative lenders, tips for crafting a strong loan application, and more. Learn how to overcome poor personal credit to get funding to start or grow your business.

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How to Get a Business Loan With Bad Credit

Getting a business loan can provide vital funding to start or grow a business. However, applicants with poor personal credit face an uphill battle. Lenders view bad credit as a red flag, making it difficult to get approved for financing.

Fortunately, there are steps applicants can take to improve their chances of getting a business loan, even with bad credit. Doing things like paying down debts, finding alternative lenders, and presenting a strong application can help offset credit challenges. With some effort, those with less-than-stellar credit can still get business loans.

Steps to Improve Your Credit Score

Before applying for a business loan, it’s wise to take steps to improve your personal credit profile. Higher scores increase the chances of loan approval and can enable lower interest rates. Here are some tips:

Pay Down Existing Debts

Lenders like to see applicants actively managing debts and not maxing out credit cards. Pay down balances as much as possible and avoid unnecessary purchases that add debt. Even incrementally lowering balances can boost scores over time.

Set up payment plans if needed and be diligent about making at least the minimum monthly payments on all accounts. Try to pay more than the minimum when possible to get balances decreasing faster. Contact creditors to see if they can modify payment dates to align better with your pay schedule and cash flow.

Reduce high balances first, focusing on credit cards charging the highest interest rates. This minimizes expensive finance charges that can keep balances stagnant. Destroy and cancel unused credit cards as well so they are not a future temptation.

Negotiate with Creditors

Contact creditors directly to negotiate revised repayment terms or lower interest rates. They may be willing to work with you, allowing you to repay debts under more affordable arrangements. This can positively impact your creditworthiness.

Ask politely if creditors can waive late fees, reduce interest rates, create a predictable monthly payment plan, or even forgive a portion of the balance. The worst they can do is say no. But many creditors want to minimize losses, so they have incentive to cooperate.

If approved for a modified repayment program, stick closely to the terms. Defaulting on negotiated terms can worsen your standing with creditors. And be completely transparent about your situation and plans to eventually repay the full balance.

Avoid Taking On New Debt

As hard as it can be, try not to take on additional financing like personal loans while applying for a business loan. Too many credit inquiries and new debts can negatively impact your application. Stick to paying down current debts first.

New financing can be tempting, especially when struggling financially. But more debts make it harder to keep up with payments and improve credit. Live frugally, limit unnecessary expenses, and find ways to generate more income like a side gig until your credit standing improves.

Check Credit Reports for Errors

Comb through your credit reports to identify and dispute any errors dragging down your score. Having inaccurate negative information corrected can provide a quick score boost.

Order free copies of your reports from and go through them line-by-line. Common errors include accounts that don’t belong to you, incorrectly reported late payments, wrong balances, and outdated default notations. If errors exist, file written disputes with the credit bureaus.

Use Credit Cards Responsibly

Use credit cards sparingly and make at least the minimum monthly payments. With responsible usage over time, you can begin rebuilding your standing with lenders.

Avoid charging more than 30% of a card’s limit and pay balances in full each month if possible. Even using cards lightly and incrementally lowering existing balances demonstrates financial maturity. Just one slip up can impact your utilization ratio and score.

Alternative Lending Options

Applicants with credit challenges should also consider options beyond traditional banks and credit unions, which typically have stringent requirements. Some alternative business lending sources include:

Online Lenders

Online lenders like Kabbage, OnDeck and CAN Capital often offer more flexibility for those with bad credit. Approval decisions are faster too. Just be aware that interest rates may be higher.

Many online lenders utilize more automated, technology-driven processes to provide quick small business loans or lines of credit. Required paperwork is minimal and application decisions take just days or weeks.

While interest rates can be high, the speed and convenience of online lending options make them ideal for urgent funding needs when poor credit precludes traditional bank loans.


Crowdfunding platforms like Kickstarter and Indiegogo allow you to raise small amounts of capital from a large pool of contributors. There are usually no credit requirements.

These sites let you showcase your business idea and funding needs to potential backers who can pledge money. It’s almost like pre-selling products or services before they exist. You must market effectively to drive pledges.

Crowdfunding won’t fully fund major expansions, but it can provide supplemental startup capital. And it shows demand for what you want to sell before approaching lenders.


Non-profit microloan providers offer small business loans up to $50,000 that can be easier to qualify for. Interest rates are low but application processes can be lengthy.

The top providers include Accion, Opportunity Fund, and Fundera. These focus on boosting underserved entrepreneurs via loans, advice, and support services. Credit standards are also more relaxed.

Just know that loan limits tend to be low. And support programs require time investments like classes and coaching along with the application process.

SBA Loans

While more challenging with bad credit, Small Business Administration (SBA) loans are still an option because the SBA guarantees a portion of the debt. Fees are lower too.

The SBA partners with approved lenders to reduce their risk, helping applicants they may otherwise decline get approved. SBA loans also offer lower down payments, longer repayment terms, and lower rates.

Even with bad credit, SBA loans may be possible with the right lender. Just be patient, as the SBA application and approval process is extensive with considerable paperwork.

Equipment Financing

Financing for specific pieces of equipment or machinery is often based more on the value of that asset rather than your credit score. This can provide an alternative source of funding.

Vendors selling equipment often handle or partner with specialized lenders offering installment payment plans for purchases. These tend to be relatively easy to qualify for based on the equipment’s worth versus personal credit.

Just be mindful of variable rates and balloon payments down the road. Still, equipment financing provides access to essential assets to operate your business.

401(k) Business Financing

Some lenders let entrepreneurs borrow against their 401(k) retirement savings for up to $50,000 towards a business loan. This avoids the need for a credit check.

While not ideal for long-term needs, 401(k) business financing can work as a last resort if you lack other financing options and can repay the loan quickly. There are also typically no upfront fees and fixed rates.

Just know that you risk your retirement funds if the business fails. And tax penalties apply if you default on the loan or don’t repay it on time. Proceed with caution.

Home Equity Loans

If you have sufficient equity, a home equity loan or line of credit can provide reasonable financing rates. These tend to be easier to qualify for than traditional business loans.

Your home serves as collateral, so lenders focus more on its appraised value versus your credit scores or income. Rates are often below 10% as well.

Just know that defaulting puts your home at risk. Home equity lending has also tightened since the housing collapse, so access and terms vary.

Angel Investors

Wealthy individuals or groups looking to invest in startups may be open to backing your business idea and ignoring personal credit history issues if the opportunity seems promising.

Angel investors focus on the growth potential of early-stage companies. A compelling business plan and demonstration of how their money will be used to scale up operations is more important than your credit.

Be ready to give up equity in your company in return for capital. Investors want a return on their funding.

Venture Capital

Like angel investors, venture capital firms can provide sizable funding for startups deemed to have strong growth prospects. Many focus more on your business concept and financial projections than personal credit scores.

These institutional investors inject millions into promising companies in exchange for an ownership stake. But expect an extensive screening process assessing your management team and market opportunity.

If your business idea resonates, the right venture capital partner could provide substantial financing despite personal credit challenges.

Tips for Applying for a Business Loan

When you do apply for financing, there are strategies to boost your chances of overcoming bad credit.

Research Lenders

Thoroughly research lenders and seek out those familiar with working with applicants with credit challenges. Community banks or lenders associated with business support organizations are worth considering.

Reach out to the lender’s underwriting department to inquire about their policies, rates, and documents needed for those with bad credit. Ask what criteria most concerns them and what strengths might help offset credit history issues. Being informed will help tailor your


Some lenders like OnDeck and Kabbage have dedicated programs for bad credit business loan applicants. These assess applications more holistically beyond just credit scores.

Ask other business owners with credit challenges about their experiences too. They may be able to refer lenders that helped them.

Prepare a Solid Business Plan

Presenting a viable, well-thought-out business plan highlights that you’re organized and serious. This can help compensate for personal credit weaknesses.

Thoroughly explain your business and expansion goals and how the loan funds will be allocated. Provide historical financial statements showing healthy sales trends and projections demonstrating realistic growth and profitability.

Include detailed competitive analysis positioning your company favorably against others in the market. And outline risks with mitigation strategies. Demonstrating business acumen can offset questions about your creditworthiness.

Consider a Cosigner or Collateral

Bringing on a cosigner with good credit or putting up collateral like real estate or equipment increases your chances of loan approval. This provides the lender with additional assurance.

Ask a spouse, relative, or business partner with a strong credit history to cosign the loan application. This makes them equally liable for repaying the debt, reducing the lender’s risk. Just be sure they understand the obligation.

Pledging business assets or personal property gives the lender recourse if you default. Assets like accounts receivables, machinery, and real estate show you have “skin in the game.”

Highlight Positive Factors

Emphasize strengths like industry experience, education credentials, an established customer base or any past successes when applying. This paints you in the best light possible despite negative credit.

Provide testimonials from satisfied customers. Showcase any awards or media coverage your business has received. Reference strong payment history with vendors and suppliers. Anything demonstrating your capabilities helps offset credit challenges.

Be Ready to Explain Credit Issues

Come armed with a narrative outlining what caused your credit struggles and, importantly, what you’ve done to correct those issues. Take accountability and show you’ve made real changes.

Explain any extenuating circumstances like medical problems or divorce, but don’t blame others. Outline your plans for strengthening your finances and reestablishing responsible money management going forward.

Lenders want to see self-awareness about past mistakes, not excuses. You understand their concerns and are committed to improving.

How to Get a Business Loan With Bad Credit Conclusion

How to Get a Business Loan With Bad Credit – Bad credit can make getting a business loan more of challenge, but not impossible. Improving your credit profile, exploring alternative lending sources, and crafting a strong application are key to overcoming low scores. With extra effort and persistence, financing is still attainable even with less-than-ideal credit. Believe in yourself and your business vision – lenders want to finance smart entrepreneurs positioned for success.

Take a long-term approach as well. View the loan search process as a journey that may require applying with multiple lenders before getting approved. And continue strengthening your personal and business finances each step of the way. With a structured plan and determination, access to capital can be obtained over time, even when facing credit obstacles. Don’t get discouraged!

Key Takeaways

  • Take steps like paying down debts and renegotiating with creditors to incrementally improve your credit.
  • Consider online lenders, microloans, equipment financing and other alternatives more amenable to bad credit.
  • Present a solid business plan, be ready to explain credit issues, and highlight strengths to offset credit weaknesses.
  • With extra effort, those with bad credit can still get business loans and funding. Don’t get discouraged.

Where to Find Help

For further assistance, connect with a business mentor through SCORE or a Small Business Development Center. Consult an accountant or financial advisor for guidance as well. And check state and local resources for small business support programs.

How to Get a Business Loan With Bad Credit FAQ

Q : What credit score is considered bad?

Ans : Credit scores below 580 are generally considered poor. But even scores in the low 600s may make getting a business loan difficult.

Q : How can I check my business credit reports?

Ans : Check your business credit reports from Experian, Equifax and Dun & Bradstreet. Then dispute any errors following the process outlined by each agency.

Q : What documents do I need for a business loan application?

Ans : Typical documents include personal and business tax returns, bank statements, business licenses, lease info, projections, and details on any collateral you plan to put up.

Q : How long does it take to get approved for a small business loan?

Ans : Approval times vary by lender but can range from just a couple days for online lenders up to 4-6 weeks at traditional banks once they receive a complete application.

Q : What is the most important factor in getting a business loan approved?

Ans : More than your credit score, lenders want to see a viable business idea, an organized plan, and realistic financial projections that demonstrate you’ll be able to repay the debt.

Q : Can I get a business loan with a credit score below 500?

Ans : It is extremely challenging to get approved for a business loan with a score under 500. Focus first on improving your credit into the mid 500s before applying. But some alternative lenders may still consider scores between 500-550.

Q : What collateral can I use for a business loan with bad credit?

Ans : Common collateral includes real estate, equipment, accounts receivable, inventory, securities, and business assets. The lender places a lien on the collateral, so be prepared to forfeit it if you default.

Q : Should I avoid business credit checks when applying for loans?

Ans : No, allow lenders to check your business credit reports. Accurately documenting your company’s credit history shows you have nothing to hide. Just dispute any errors on business credit reports first.

Q : Can I get a cosigner if I have bad business credit?

Ans : Yes, bringing on a cosigner with good personal credit can improve the chances of getting approved for a business loan if you have poor business credit. The cosigner shares legal responsibility for repaying the debt.

Q : What is the fastest way to increase a business credit score?

Ans : Pay all business bills and loans on time. Also, keep business card and line of credit balances low. Quickly correcting late payments and errors on credit reports can also provide a fast boost.

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