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.

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.

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 SBA loans, some options like the SBA microloan have relaxed eligibility requirements and are worth exploring.

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

Eligibility criteria vary by lender, but here are some general guidelines:

  • Your company must be a U.S.-based for-profit entity operating legally.
  • You must seek funding from other financial institutions and exhaust those options before applying for an SBA loan.
  • You must demonstrate you’ve invested financial resources and time into the company.


  • 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.

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.

Online lenders

Online lenders are another 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.

You may also find that these lenders have more flexible time in business and annual revenue requirements. Plus, some 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 guidelines.


  • Higher interest rates and fees. Online loan interest rates and fees are often higher than you’d get with a bank or credit union.
  • No in-person support. You’ll be limited to phone, online or chat support.


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 distressed 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.

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.


  • 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. These 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. 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 amounts. The average borrower gets a microloan of $13,000, but you could be eligible for up to $50,000.
  • 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. You can also inquire about invoice factoring if you have a sizable amount of receivables.

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. Before applying, research your options and assess the benefits and drawbacks of each. Most importantly, retrieve loan quotes and run the numbers to determine which is best for your company.

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 and CDFIs 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.