Getting approved for a business loan when you have bad credit can be challenging. Lenders typically want to see a good-to-excellent credit score and a solid track record of responsibly managing debt repayment.

But even with a credit score that is less than ideal, it’s still possible to obtain a loan for your business. The catch is that it will likely be more expensive and you may need to provide an asset that acts as collateral.

Here’s everything you need to know about bad credit business loans, including how to find the best, most affordable one for your business.

What is a bad credit business loan?

A bad credit business loan is any loan product designed for business owners with poor credit. They have lower credit score requirements and more relaxed eligibility requirements. Since the lender is taking more risk to lend money, bad credit business loans come with higher interest rates and fees and may require more assurances that you won’t default on the loan.

There are many different types of business loans for applicants with bad credit. They include:

  • Term loans
  • Microloans
  • Secured loans
  • Invoice factoring
  • Invoice financing
  • Equipment financing
  • Merchant cash advances
  • Working capital loans

What is a bad credit score?

A bad credit score depends on the scoring model used by the lender. For personal credit, a bad credit score is often categorized as a FICO score of 300 to 579.

Lenders may also look at your business credit score if you have one. There are a handful of different business credit score providers. They include the FICO Small Business Scoring Service (FICO SBSS), Equifax Business, Experian Business and Dun & Bradstreet.

Each agency has its own business scoring models and may include multiple scores and ratings to assess creditworthiness. Some, like Experian and Dun & Bradstreet provide scores that range from 1 to 100 with 1 to 49 suggesting high risk to lenders.

How a bad credit business loan works

Like any small business loan, a bad credit business loan provides funding that must be repaid over time and with interest. Some loans provide a lump-sum payment or a line of credit.

Some banks and credit unions provide bad credit business loans, but these are more widely available from online lenders.

You may also be able to obtain a loan with bad credit from community development financial institutions (CDFIs). CDFIs are specifically designed to provide credit and other financial services to underserved markets and populations in order to stimulate growth in these communities.

Funding times for bad credit business loans vary. Depending on the lender and their underwriting requirements, you may be able to obtain funding for a bad credit loan quickly, in some cases in as little as 24 to 72 hours after receiving approval.

The APR for bad credit business loans can be as high as 35 percent or more. But not all small business loans charge interest. Some charge a fee instead.

To get the best rates for a bad credit business loan, you may need to provide business collateral.

What is business collateral

Business collateral is an asset your business can use to secure a business loan. This could be property, equipment, inventory, or even outstanding invoices. Should you default on the loan, the lender would be able to take that asset as payment.

In order for an asset to be eligible to be used as collateral it must be owned outright by your business and not have been used as collateral for any other borrowing or debt you may be responsible for.

The amount and type of collateral you’re required to provide will vary based on many factors, including credit score and the amount of the loan you’re seeking and your ability to repay the debt. But when applying for a loan with bad credit, it is not unusual for lenders to require assets that equal the amount of the loan you’re seeking.

The main advantage of collateral is that it can help you secure a business loan and possibly one with better rates and terms. As Michael Stone, Senior Vice President of Commercial Lending for Georgia’s Own Credit Union notes, collateral can increase “the likelihood of approval and can support longer repayment terms and lower interest rates.”

Pros and cons of bad credit business loans

Before proceeding with a bad credit business loan, consider the benefits and drawbacks carefully.


  • Flexible qualification criteria. Bad credit business loans often feature more lenient eligibility requirements.
  • Fast funding. Depending on the lender, you may receive funding in as little as 24 to 72 hours after being approved.
  • Helps establish credit. For new businesses that have little-to-no credit history, a bad credit loan can be one way to establish or improve your credit profile as long as your lender reports your payments to one or more credit bureaus.


  • Higher interest rates. With a subpar credit score, you will generally be required to pay far higher interest rates than other borrowers to help offset the risk lenders take.
  • Risking your collateral. Putting valuable assets on the line as collateral in order to obtain a loan can be a risky proposition. If you are unable to continue making payments on your loan, you may lose those assets.
  • Lower loan limits. Lenders may not be willing to lend as much money as your business requires when you have a bad credit score.

How to get a business loan with bad credit

When you’re ready to get a bad credit business loan, here are the steps to follow.

Check your credit scores

Lenders may look at both business and personal credit reports. So pull both and see what lenders will look at. If there are any errors, you’ll have to notify any bureau reporting the incorrect information.

Improve your credit scores

If you have time, improving your credit could go a long way to helping you save money. Some of the most common steps to take to build credit include making loan and credit card payments on time, correcting negative information in your credit reports, and maintaining a low credit utilization ratio.

Find a co-signer

Applying for a loan with a co-signer who has good or excellent credit can significantly improve your chances of not only being approved but also receiving a better interest rate and loan terms. But before taking this step, be sure your co-signer understands the risks associated with this type of agreement.

Organize and prepare documentation

As part of the application review process, a lender will thoroughly review your business and personal financial picture. Be prepared for this step by getting all of your financial documentation in order.

A lender will want to see your business plan and will also review such things as your business and personal bank accounts. If your business plan is not up to date or as complete as it should be, spend some time polishing this document.

Shop around and compare lenders

In order to secure the best loan offer possible, take the time to do your due diligence. Shop around and look for prequalification from multiple lenders. Compare offers carefully including interest rates, loan initiation fees and prepayment penalty fees.

Apply for a loan

Once you’ve identified a lender that you think is a good fit, it’s time to submit your application. Often this can be done online, though you may be required to participate in a follow-up phone call with the lender to answer additional questions or provide additional information.

Bottom line

Even with bad credit, it’s still possible to get a loan for your business, though the process may be slightly more challenging. You’ll need to shop around and explore the different options to determine what makes the most sense for you and your business.

Frequently asked questions

  • Yes, it is possible to get a business loan for bad credit. Online lenders and even local community development organizations may provide to small business owners with poor credit. But you will likely pay more for the loan than applicants with good credit and may also have to provide collateral.
  • Though requirements vary from lender to lender, you’ll generally need a score of at least 500 to get a bad credit business loan.
  • Yes, even applicants with bad credit can qualify for a Small Business Administration (SBA) loan. SBA loan approval is generally based on such factors as how you make money, a character evaluation of ownership and where your business operates.
  • If you have bad credit and need fast financing, there are a few options to consider. Some alternative small business lenders offer business lines of credit and equipment financing to business owners with bad credit. These will likely be secured business loans, which require you to put up an asset as collateral that can be taken, should you default on the loan. Your business may also be eligible for invoice factoring, which focuses more on the creditworthiness of your invoiced clients than it does your business. It’s possible to get funding for any one of these loans in as little as 24 hours depending on the lender and how quickly you can provide the required information.