A bad credit business loan is a form of financing designed for business owners with less-than-perfect credit. Although they are more accessible than traditional bank loans, it can be challenging to find affordable bad credit business loans due to the risk of default. Many come with steep interest rates and fees, resulting in a monthly payment that could create cash flow challenges in your company.

But if you want to start a business with bad credit or your business is in dire straits, business loans for bad credit might be your only option. But that doesn’t mean you should take the first one that comes your way.

Before settling for a loan with unreasonable terms, there are several types of bad credit lenders to consider. Here’s a look at the advantages and disadvantages of each type.

Key takeaways

  • If you want to start a business with bad credit and no money, your business loan options will be limited
  • If your business has been operating with losses for a while and you have bad credit, you’ll be similarly stuck with only a few options
  • Business financing alternatives to traditional lending institutions — like online lenders and microlenders — can help
  • If you’re part of a minority group, community development financial institutions (CDFIs) and minority depository institutions (MDIs) might be a good option

Online lenders

Online lenders are a popular choice if you want to get a bad credit business loan. These alternative lenders offer funding solutions that are more accessible to credit-challenged borrowers than traditional bank loans. Some will accept a credit score as low as 500.

These lenders can also help you get a business off the ground since you may find that they often have more flexible time in business and annual revenue requirements. In other words, if you’re starting a business with no money and bad credit, start here.

Plus, some online lenders offer online pre-qualification tools that let you view loan quotes without impacting your credit score.


  • Streamlined lending process. You can generally apply online in minutes and get a quick funding decision. (Some lenders also disburse funds as soon as the same or the next business day following approval).
  • Lenient eligibility guidelines. Several online lenders offer business financing options with lower credit score and time-in-business guidelines.


  • Higher interest rates and fees. Online fees and interest rates for bad credit business loans are often higher than you’d get with a bank or credit union.
  • Short repayment periods. Many online lenders only offer short-term loans, especially to struggling businesses and those trying to start a business with bad credit and no money. You could need to repay what you borrow rapidly, often on a weekly or biweekly cadence.

Bankrate insight

To qualify for a bad credit business loan, lenders typically require you to have strong revenue and a suitable amount of time in business, which are factors that can help show you will be able to repay the loan.

U.S. Small Business Administration (SBA)

The SBA states it’s possible to qualify for loans even with bad credit, but it’s up to the lender that actually funds the loan. Even though you’ll need good or excellent credit to qualify for most types of SBA loans, you have some other SBA-backed options.

Specifically, SBA microloans have more relaxed eligibility requirements than other SBA-backed loans. They come in smaller loan amounts, but they may be a good option to help businesses facing financial difficulty or people starting a business with no money and bad credit.

The SBA also offers Community Advantage loans (CA loans) of up to $350,000. These loans have relaxed eligibility requirements than other SBA loans and are designed to help borrowers in underserved markets. This includes women-owned, veteran-owned and minority-owned businesses.

All SBA loans are accessible through SBA-approved lenders, and you can use the Lender Match tool to find options in your local area.


  • Attractive terms. The interest rates and fees are usually similar to traditional bank loans.
  • Educational resources. Borrowers get access to resources to help start and expand their companies.


  • Complex application process. It can be challenging to navigate the application process, which requires more documentation than traditional loans.
  • Slow funding times. It could take some time to hear back from the SBA and several weeks or months before you’re approved for funding.

Bankrate insight

The SBA Community Advantage loan is a pilot program set to end in 2024. But recent SBA rule changes have created a path for lenders to continue to offer Community Advantage loans. These companies will shift from being known as Community Advantage Pilot Program Lenders to Community Advantage Small Business Lending Companies (CA SBLCs).

Traditional banks

It’s not uncommon for business loans from traditional banks to feature higher loan amounts, lower interest rates and extended repayment periods. These perks are typically only available to borrowers with solid credit ratings.

But a bank may offer secured financing options to a borrower with a lower credit score. It could be a start to establishing a solid relationship, and you can start rebuilding your credit since most banks report account activity to the credit bureaus.


  • Establish relationships. If you get a business loan with a traditional bank and manage it responsibly, you could open the door to more attractive funding opportunities.
  • Build business credit. You can start building business credit if the bank reports to the business credit bureaus.


  • Collateral requirements. If you qualify for a secured business loan, you’ll need to put up collateral to receive funding.
  • Strict eligibility requirements. For most business loans, traditional banks typically require two years in business and annual revenues of $100,000 to $250,000.

Community development financial institutions

Community development financial institutions (CDFIs) serve those overlooked borrowers in minority and low-income communities who struggle to access funding from traditional lenders. They comprise banks, credit unions, depository holding companies, loan funds and venture capital funds. Small businesses in underserved communities may have luck securing funding through CDFIs.


  • Competitive rates. You may be eligible for a small business loan with a competitive rate, even with poor credit.
  • Educational services. CDFIs often offer a variety of financial education services to their borrowers.


  • Longer wait for funding. It can take weeks to get your funds compared to hours or days when you work with an online lender.
  • Limited accessibility. Funding opportunities are limited to small business owners in low-income and minority communities.

Minority depository institutions

Minority Depository Institutions (MDIs) are banks and credit unions majority owned by minorities. Anyone can bank with these institutions, but each specializes in working with underserved and disadvantaged communities. That includes low- and moderate-income communities, people of color, women and veterans.


  • Targeted products and services. Many MDIs are organized to serve specific underserved groups, including minorities (such as Black or Hispanic business owners). If you can find an MDI that gears its offerings toward you, it may make it easier to get the help and financing you need.
  • Educational services. Like CDFIs, some MDIs also help their customers learn how to manage their money.


  • Not as accessible to everyone. These institutions focus on low-income areas and are usually concentrated in metropolitan areas, so rural business areas may have trouble accessing them.
  • Lack of resources. MDIs don’t have the financing of larger traditional banks. So they may not be able to offer as many loans to borrowers or may lack the ability to offer online loans.

Invoice factoring companies

Invoice factoring companies let you exchange your invoices for cash — typically up to 85 percent of their value. Perfect credit isn’t required to qualify for invoice factoring since the invoices are used as collateral and the creditworthiness of your clients is more important than your personal or business credit rating.

The factoring company handles collection since they purchase unpaid invoices. Upon collection, you’ll receive the remaining amount you’re owed after factoring fees are deducted.

So, can factoring funding help with bad credit? Sure. But be advised this way to bridge cash flow gaps generally comes at a higher cost than other types of business financing.


  • Accessibility. Invoices serve as collateral, so a low credit score isn’t a deal breaker.
  • Fast funding. Most factoring companies disburse advances on invoices in just a few days.


  • Client creditworthiness considered. If your clients have bad credit, your outstanding invoices may not be eligible for factoring.
  • Factoring fees. While factoring funding can help with bad credit, the associated costs can be steep and add up quickly if invoices remain unpaid for an extended period.


Microloans are small business loans, typically between $500 and $50,000 and administered by nonprofit organizations and online lenders like Accion Opportunity Fund. Many are also insured by the SBA and feature lower interest rates. Plus, you can expect more lenient lending guidelines as microloans are designed to assist underserved business owners who can’t get qualified for funding elsewhere.


  • Generous loan terms. Many microloan lenders offer low interest rates typically reserved for borrowers with good or excellent credit.
  • Flexible loan terms. Most microloans come with repayment periods between six months and six years.


  • Slow approval times. It could take up to three months to hear back regarding a lending decision.
  • Complex application process. You’ll need many documents to get started, and the application process is time-consuming.

What to do if you are denied a bad credit loan

Consider exploring what other lenders have to offer or use an online lending marketplace to identify other lenders that could be a good fit. If you have a sizable amount of receivables, you can also explore how factoring funding can help with bad credit since your own credit score doesn’t matter much there.

The borrowing costs are often steep with some types of bad credit business loans. This includes invoice factoring and especially merchant cash advances, which may have triple-digit interest rates. So these should only be used after you’ve exhausted all other options.

Bottom line

Several types of lenders offer bad credit business loans, but not all are ideal. If your business is already struggling or you’re starting a business with no money and bad credit, weigh your options carefully. Taking on a loan you can’t manage could mean tanking your credit even further.

Ultimately, before applying, research your options and assess the benefits and drawbacks of each. Most importantly, retrieve loan quotes and run the numbers to help you find the best bad credit business loans.

Frequently asked questions

  • Yes. Some lenders require a credit score as low as 500 to qualify for a bad credit business loan.
  • Ideally, you’ll want to explore online lenders, microlenders, CDFIs and MDIs with low or no credit score requirements. Some also offer funding with no down payment and do not have a minimum annual revenue or time in business requirement.
  • It’s possible to get a business loan with bad credit and no collateral. Qualifying with a traditional lender can be challenging, though. So, an online lender or CDFI could be ideal in this case.