Getting a business loan can help you expand your business or pay off other high-interest debts that are holding you back. But what if you don’t have an established business score or you have bad credit?

Bad credit business loans help business owners with no credit or poor credit get the funding they need. They have relaxed eligibility requirements but tend to come at a higher cost. To get the right loan for your business, you’ll have to shop around to find the most affordable option.

If you are a small business owner with bad credit, the following steps can help you choose the best bad credit business loan lender.

Check your credit score and eligibility

Lenders look at your personal and business credit reports and scores to help assess creditworthiness. They want to see how reliably you repay your debts on time and how much debt you currently owe. The higher your credit scores, the less risky you’ll look to lenders.

Before you look for a loan, you’ll want to check your credit score and report. For personal credit, a FICO score of 300 to 579 is considered a bad credit score. Business credit scores can vary, but some like Experian or Dun & Bradstreet PAYDEX consider scores from 0 to 49 as high risk.

Your personal and business credit scores are separate. Even if your personal credit is in the good or excellent range, you may still struggle to get a business loan if your business credit score is on the low end.

In addition to your credit score, here are the most common factors a lender looks at to see if you qualify for a loan:

  • Length of time in business. If you’re a brand new company, this factor may work against your efforts to get a lot of funding. You can often make up for your lack of longevity by keeping a positive payment history. Some lenders will also accept collateral to secure a loan, like commercial real estate or business equipment.
  • Annual revenue. A lender will also consider your business’s annual revenue when determining how much to lend you.
  • Cash flow. Maintaining positive cash flow (more inflow than outflow) may also increase your credit score and make your company more appealing to potential lenders.
  • Current debt load. Credit utilization affects business credit scores just like it does personal credit scores. Aim to utilize no more than 30% of any credit line to improve your creditworthiness.

Compare types of bad credit business loans

If you have bad business credit, you may want to explore other types of business loans besides traditional business loans. Expanding your funding options could translate to a better chance of approval and more favorable terms. Here’s a look at the types of loans you may be eligible for with bad credit.

  • Term loans. A term loan is a traditional loan. A bank or other lender will give your business money in one lump sum, to be repaid over a set period of months.
  • Lines of credit. Your business may also qualify for a business line of credit. This is a revolving extension of credit, similar to a credit card. You can borrow against it as needed up to a set maximum amount.
  • Equipment loans. An equipment loan helps you get the money to buy new business assets. The loan uses the equipment you purchase as collateral against the debt, which can make it possible to get approved even when you’re turned down for an unsecured loan or line of credit.
  • Invoice financing. When a bad credit score prevents your business from getting a loan or line of credit, you may be able to leverage your unpaid invoices. In this type of transaction, you sell your unpaid invoices to a lender who pays you the value of the invoices immediately (minus their cut). You pay back the lender as clients pay their invoices.
  • Invoice factoring. Invoice factoring works a lot like invoice financing. An invoice factoring company buys your invoices and gives you a lump sum payment. Then your clients pay the factoring company directly instead of submitting their payment to your business.
  • Business credit cards. A business credit card typically has higher interest rates and offers smaller funds compared to other types of business loans. But certain lenders and some types of business loan options like invoice factoring don’t report your payments to credit bureaus. So they can’t help you build credit like a business credit card could.
  • Merchant cash advance. A merchant cash advance often comes from a credit card carrier. The lender will look at your recent sales to determine how much you can afford to borrow. This type of loan may be a good solution for short-term lending needs but typically carries higher rates and shorter repayment terms than any other option.

Shop around and compare costs

If you have bad business credit, you can expect to pay higher than average business loan rates. But interest rates aren’t the only fees you’ll have to watch out for.

Even the best bad credit business loans will come with additional fees. Here are a few to watch out for.

  • APR. The annual percentage rate on your loan or other credit represents the yearly interest rate and additional fees.
  • Origination fee. Many loans have a one-time origination fee. This is taken out at the start of the loan, so it lowers your actual distribution amount.
  • Underwriting fee. Lenders charge this to cover their operating costs and to cover their risks.
  • Closing fee. Your lender may also charge separate closing costs for certain loans.
  • Late payment charges. Lenders almost always charge for late payments. As a business with bad credit, paying late will drop your score on top of costing you an extra fee.

Gather required documents and information

When you’re ready to get a bad credit business loan, you’ll have to gather some documents and information. Having the following ahead of time can help you secure your loan as quickly as possible:

  • Business plan
  • Tax returns
  • Bank statements
  • Profit and loss statement
  • Cash flow statement
  • Balance sheet
  • Business registration
  • Business license and permit, if applicable

Apply for your business loan

As long as your documents are in order, applying may be the easiest part of the process. Some lenders give an immediate, online response. In other cases, you may need to visit an in-person representative. Small Business Administration (SBA ) loans tend to take longer for approval because you have to prove you have exhausted all other lending options.

If you receive multiple offers, add a review stage to your process. You will want to evaluate not just the amount of each business loan but also factors that affect the overall cost of the loan. These include:

  • Term length
  • Monthly payments
  • Interest rate
  • Total cost with all fees
  • Penalties

Pros and cons of bad credit business loan lenders

Lenders who offer loans and lines of credit to businesses with bad credit may seem like a port in the storm, but they are not without their drawbacks. Here’s a look at the pros and cons of working with a bad credit business loan lender.


  • Get money for much-needed business assets.
  • Build better credit by paying on time if the lender reports your payments to the credit bureau.
  • Improve cash flow by consolidating other debt.


  • Pay higher interest rates than customers with good credit.
  • Get approved for smaller amounts.
  • Receive fewer loan options and less flexibility on terms.
  • Not all lenders report your payments to the credit bureaus, so you may not build credit as you make on-time payments

Bottom line

There are pros and cons to getting traditional and alternative loans when your business has bad credit. You can fund much-needed projects and build your credit, but you won’t get the best-advertised interest rates or flexible terms. It’s often wise to use these loans as a short- to mid-term option and refinance when you have better credit.

Frequently asked questions

  • Some lenders will provide loans to businesses with a personal credit score in the 500s, but it may not be easy to find these lenders, and it will cost you more in interest and fees compared to businesses with good credit. Check out our guide to the best bad credit business loans for help and a list of lenders who offer loans to businesses with poor credit scores.
  • If your business has bad credit, you may need to seek out alternative business lenders. Many online alternative lenders offer more affordable terms and more approvals than traditional banks. For instance, you can often get a personal loan with a FICO score of just 500 from an alternative lender, when a traditional bank requires a score in the 600s. Ultimately, the best business loan is generally the one with the lowest interest rate and fewest fees.
  • SBA loans are stricter than other bank loans. But they do specialize in loans for small businesses who have exhausted all other options. You have a better chance of approval if you offer collateral.
  • Make sure you’ve applied for the right type of business loan. Some types don’t have easier lending requirements like a shorter time in business and smaller annual revenues. You may have better luck with invoice factoring or a business credit card if you aren’t approved for another type of business loan. If all else fails, you can work on building your personal and business credit scores.