How to get a business loan if you have bad credit

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Ask a Lender
January 12, 2017 | Updated September 26, 2017


Key Points

What to expect when you have bad credit

  • Lenders may assess both your business credit and personal credit.
  • Traditional bank loans for those with bad credit may come with higher interest rates.
  • Alternative lending options, such as a business credit card, may be easier to obtain.

Getting a loan for your business can be difficult. It’s even more difficult if you or your business have bad credit.

It’s not impossible, however, to get a business loan if you have bad credit. There are things you can do to improve your chances of qualifying for a loan, and there are a few financing options that people with bad credit are already more likely to qualify for.

Business credit vs. personal credit

When talking about business owners with bad credit, we may be talking about the business’s credit score, the owner’s credit score, or both.

Although small-business owners can use personal credit to run their businesses, doing so is risky, as any financial troubles the business experiences could harm their personal credit score. Some lenders are beginning to use tools that blend business and personal credit scores to better assess small-business owners seeking loans.

Generally speaking, credit scores below 620 make it more difficult to qualify for financing. If you’re having difficulty qualifying for a business loan because of poor credit, one option is to build up your score before applying for loans, which will help you increase the likelihood that your loan application will be approved. You also will be able to secure a better interest rate if you are approved.

Bank loans

It can be difficult for borrowers with bad credit to qualify for business loans from a bank. If you qualify, you may be charged a higher interest rate. You also may be required to provide more collateral than you would if you had better credit.

One common source of traditional small-business loans is the U.S. Small Business Administration (SBA). The SBA 7(a) loan program is its most common program for helping startup and existing small businesses with financing, and the loans are guaranteed for a variety of general business purposes, according to the SBA’s website. The loans are made by participating lending institutions, and are then guaranteed by the SBA, reducing the risk to the lender, but not the borrower.

Other financing options

There are alternatives to traditional bank loans that may better serve business owners with poor credit.

One option is a small-business microloan. The SBA, among other lenders, offers microloans for small businesses.

A business credit card is another option, but be aware that you’ll likely pay a higher interest rate than you would with a more traditional loan, costing you more money in the long run. One benefit of a business credit card is that if you get one in the business’s name, and make payments on time, it can help build the business’s credit.

If your business makes regular bank deposits, you may qualify for a revenue-based loan, even with bad credit. A business may be able to obtain a business loan equal to 10 percent of its annual gross deposits. Such loans may come with long terms, as long as 18 months, and also may come with slightly higher interest rates.

If your business has a large credit card sales volume, you may be eligible for a merchant cash advance. Your business will get cash in advance, and in exchange, you will owe the lender a portion of your future credit card sales. Such advances can be costly, however, so make sure you thoroughly research your options and select one with a lower interest rate if possible.

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