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Business Loans for Bad Credit for 2022
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Getting a business loan with impaired credit can feel nearly impossible — fortunately, there are bad credit business loans available to those with credit scores as low as 500.
Lenders use your score as a measure of creditworthiness — the higher the score, the more likely you are to pay back your loan, which means less risk for the lender. However, a personal credit score of 600 or lower is generally less desirable in the eyes of a lender. If you fall in that category, check out the following types of business financing that cater to bad-credit applicants.
Bad credit business loans: 5 best options
We’ve put together a list of some online lenders that approve business owners with low credit scores. To be included, lenders needed to meet the following criteria:
- Minimum credit score no higher than 600, or explicitly state that a low credit score is not a barrier to funding.
- Funding available in one to three days.
Small business loans for bad credit
|Lender||Minimum credit score||Loan amount||Time to funding after approval||Loan type|
|Credibly||500||Up to $400,000||1 business day||Working capital|
|Fora Financial||N/A||$5,000 to $750,000||72 hours||Working capital|
|BlueVine||530||85% to 90% of unpaid invoices up front, up to $5,000,000||1 business day||Invoice factoring|
|QuickBridge||500||Up to $500,000||1 business day||Working capital Term loans|
|Fundbox||600||Up to $150,000||1 business day||Line of credit|
Credibly offers working capital loans of up to $400,000 for business owners with credit scores as low as 500. Additionally, you need:
- At least six months in business
- $15,000 in average monthly bank deposits
Credibly’s working capital loans come with repayment terms between 6 and 18 months with automatic daily or weekly payments. Credibly uses factor rates to express interest, which are decimal figures rather than percentages; its factor rates start at 1.15%. To find the cost of your loan, you would multiply your factor rate by your loan amount to calculate the total amount that you’d owe.
Credibly also charges a one-time loan origination fee of 2.50% of your total loan amount, which is deducted from your funding. After you apply, you could be approved in as little as 24 hours and receive your loan as soon as the same day.
Fora Financial provides working capital loans between $5,000 and $750,000. The company doesn’t disclose a minimum credit score but states that it looks at your entire business model and future plans. Additional eligibility requirements include:
- At least six months in business
- $12,000 in gross monthly sales or a minimum of $5,000 in credit card sales
- No open bankruptcies or dismissed bankruptcies within the past year
Repayment terms are up to 15 months with flexible payments. Similar to Credibly, Fora Financial uses factor rates to calculate interest, with its factor rates ranging from 1.10 to 1.35. This lender also charges a 2.50% loan origination fee.
After receiving your application, Fora Financial could approve you for funding in as little as 24 hours. From there, you could see loan funds in your account in 72 hours.
Invoice factoring from BlueVine is available for up to $5,000,000 to B2B business owners with a credit score of 530 or higher. BlueVine also requires:
- At least three months in business
- $10,000 in monthly revenue
Eligible businesses could receive 85% to 90% of the value of unpaid invoices up front. Your customers would pay their invoices to BlueVine, then BlueVine would collect a fee and deposit the remaining amount in your account. BlueVine’s weekly fee rates start at 0.25%.
When reviewing your application, BlueVine considers the financial strength of your clients since it collects payments from those customers. You may be approved for funding based on your customers’ payment history rather than your credit profile. BlueVine can approve an application for invoice factoring in as little as 24 hours, and you can receive funds as quickly as one business day after approval.
QuickBridge offers business owners working capital loans and term loans of up to $500,000. According to the website, QuickBridge considers all credit scores. Additional eligibility requirements include:
- At least one year in business
- $150,000 in annual gross revenue
QuickBridge does not publicly disclose its loan terms, interest rates or origination fee, but the website says it does not charge any hidden fees and offers flexible loan term options. If QuickBridge approves your application, you could receive your funds in one business day or a few business days.
Business lines of credit are available from Fundbox for up to $150,000 and require a minimum credit score of 600. Business owners must also meet the following eligibility requirements:
- Based in the U.S.
- $100,000 in annual revenue
- Have a business checking account
- Ideally, in business for at least six months
After you make a withdrawal from your line of credit, Fundbox collects payments on a 12– or 24-week term. As you repay your debt, your full credit limit becomes available again. Fundbox only applies interest to the amount you actually borrow, not your credit line as a whole. Rates may start at 4.66% for 12-week payment terms and 8.99% for 24-week terms.
If approved, Fundbox can fund your line of credit as soon as the next business day.
Types of bad credit business loans to consider
Bad credit business loans can come in many forms, from traditional term loans to specialized equipment or invoice financing. These types of funding may have low credit requirements, or they may have options to use collateral to reduce risk for the lender.
Your choices for bad credit business loans could include:
- Term loans from alternative lenders: Online lenders are often more lenient in their business loan requirements than banks and may look at factors beyond credit score when evaluating applicants. In addition, the application and funding processes are typically quicker and simpler with alternative lenders than with their traditional counterparts. However, online lenders may charge higher rates or offer unfavorable repayment terms.
- Secured loans: Business owners usually need to offer up valuable assets as collateral to obtain a secured business loan. This often makes it possible to get a secured loan with poor credit, as the lender can take the collateral to recoup some costs if the business defaults.
- Cosigned loans: Businesses with bad credit may be able to bring on a partner with good credit to cosign for a loan. The cosigner becomes responsible for the debt if the business defaults. It’s a gamble for the cosigner but can help a bad-credit business access cash.
- Working capital loans: These short-term business loans are used to fund day-to-day operations. Working capital loans are quick to fund, and businesses don’t typically need to meet many requirements — which may be ideal for bad-credit applicants.
- Equipment financing: Equipment financing lets businesses buy expensive equipment like commercial machinery, vehicles or manufacturing tools by paying little by little over time (plus interest). Businesses with bad credit may be able to finance equipment because the equipment itself is used as collateral.
- Invoice factoring: Invoice factoring, or accounts receivable financing, lets a business get cash immediately by selling its unpaid invoices to a factoring company. The business gets money up front (minus fees), and the factoring company collects on the invoices. Invoice factoring involves low risk for the lender because your company’s invoices secure the loan.
- Merchant cash advances: Businesses with bad credit may consider a merchant cash advance, as merchant cash advance providers are more interested in a company’s sales figures than credit scores. A merchant cash advance provides a lump sum of funding that is typically paid back daily through automatic deductions from the business’s credit card and debit card sales. Since the payback is automatic, cash advance providers are guaranteed that money goes directly to them.
The drawback: No matter which bad credit business loan option you choose, prepare yourself to receive a high interest rate from your lender. Borrowers with credit scores below 600 typically don’t receive the lowest rates. You may want to reevaluate an offer if the proposed interest rate makes the financing unaffordable.
How to get a business loan with bad credit
Getting a business loan with bad credit is a matter of finding financing with flexible eligibility requirements. Once you identify a lender that may accept your credit score, there are a few other steps to take to help you secure funding.
Calculate how much you could borrow
Consider using a business loan calculator to estimate how much you may be able to borrow based on your credit score, revenue and time in business. The amount you ultimately borrow depends on a number of factors, such as the size of your payments. These payments — which could follow a daily, weekly or monthly schedule — are based on your loan amount, interest rate and any additional fees a lender charges.
Business owners with low credit scores typically receive steep interest rates, so keep this in mind when deciding how much funding to request. Taking on debt that you can’t afford to repay will only hurt your credit score further. Securing longer repayment terms could make your payments more affordable, but be careful not to end up paying an excessive amount of interest throughout the life of the loan. Short-term loans typically require high payments, but you may pay less in total interest.
Prepare your application documents
Even if a lender has a low minimum credit score requirement, it may still dig into financial documents like your business bank account statements and tax returns. Be prepared for a lender to ask for one or more of these documents:
- Business plan
- Business and/or personal bank account statements
- Business and/or personal tax returns
- Business registration and licenses
- Employer identification number (EIN)
- Financial statements, including profit and loss, cash flow and balance sheet
- A listing of business assets and liabilities
Information contained in these documents could offset your poor credit and help you appear trustworthy as a borrower. Plus, organizing your paperwork ahead of time could speed up the application and approval process.
Offer collateral to secure funding
Offering business assets as collateral could improve your chances of being approved for financing. Lenders can seize collateral to recoup losses if a borrower defaults, which reduces risk for the lender and gives the borrower a better shot at approval.
Acceptable forms of collateral may include hard assets such as equipment, fixtures, inventory or commercial property. Future earnings, such as accounts receivable and unpaid invoices, may also be used as collateral. Watch out for loans that may require you to pledge personal assets, such as your personal car or home, as collateral to secure financing.
Understand your loan agreement
As mentioned earlier, business loans for bad credit applicants may come with high interest rates that can make the financing expensive. Make sure you understand other aspects of your business loan agreement to avoid surprises or penalties down the line. Review these key components of your loan agreement:
- How much you’ll be borrowing and repaying
- The terms that determine your repayment schedule
- Penalties for early or late payments
- Whether a personal guarantee is required, which would make you personally responsible for the debt
If you’re comfortable with the details in your business loan agreement, you’re ready to move forward with your bad credit business loan.
Improve bad credit to get better business loans
There are many things you can do to build your score back up so that you can have your pick of business loans.
- Pay your bills on time: Paying promptly (and early, if possible) will do wonders for your credit score. You don’t need to pay the whole balance if you can’t — just be sure you’re meeting the minimum.
- Reduce debt: Though paying the monthly minimum is good, getting all your debt paid down is better. And you don’t have to do it in one fell swoop — watch your overall spending, and start putting any extra money toward the debt with the highest interest rate. Slowly, you’ll bring your credit utilization ratio down, which will improve your score.
- Renegotiate interest rates: Consider contacting your creditors to see if they’d be willing to negotiate the interest rate. You can also consider consolidating business debts for better interest rates.
- Monitor your credit: Occasionally, a credit bureau will make an error on your credit report, so it’s important that you check it to ensure a mistake is not pulling your score down. You can request a copy of your credit report directly from one of the credit bureaus, or you can subscribe to a credit monitoring service that will watch your score for you.
- Watch your business credit: Your business also has business credit, which lenders can look at — often without your knowledge. Keep an eye on your business credit report to make sure similar mistakes have not been made. You can request a report from business credit bureaus, such as Dun & Bradstreet.
- Get a business credit card: A business credit card may be easier to obtain than a business loan, as some cards don’t have high credit requirements. Making successful, on-time credit card payments could also help you improve your personal credit score.
Whether you decide to get a business loan with bad credit or wait it out until you can improve your score, make sure you stay on top of your payments and keep your eye on your goals. Successfully managing any business loan, bad credit or not, will show lenders that you can handle debt. This will put you in a better position to access more options and score your best rates and terms for any future financing needs.
Where to get a business loan with bad credit
You have several options for getting a small business loan with bad credit, including:
- Online lenders: Online lenders may be more willing to work with borrowers with bad credit because they don’t have the high overhead that brick-and-mortar banks do. However, if you have questions or problems with your loan, you won’t be able to just walk into a local branch for help.
- Microlenders: A microloan is any loan of $50,000 or less. These loans are often provided by nonprofit organizations or government agencies, so they offer competitive interest rates and fewer fees. For example, the microloan program from the U.S. Small Business Administration (SBA) is designed to help small businesses start up and expand operations.
- CDFIs: Community Development Financial Institutions (CDFIs) are private financial institutions that are dedicated to helping low-income, low-wealth and other disadvantaged people and communities access economic opportunities. You can find CDFIs that support your local community through the Opportunity Finance Network or a Small Business Development Center.
- Banks you have existing relationships with: Traditional brick-and-mortar banks tend to have higher credit score thresholds, but if you have an existing relationship with a bank, it may be willing to consider other mitigating factors, such as positive cash flow, your history with the bank and additional cash resources and reserves.
Your business cash flow: When you apply for alternatives to traditional small business loans, such as invoice factoring, accounts receivable factoring and merchant cash advances, lenders may not consider your credit score at all. They will be more concerned with your cash flow (the amount of money coming into your business) and possibly the creditworthiness of your customers.
How to get startup business loans with bad credit
Startup business loans can be harder to get because many lenders have a minimum time-in-business requirement. Fortunately, there are still ways to access business financing regardless of how long you’ve been in business.
- Business credit cards: Business credit cards may have more flexible credit score requirements than small business loans. Plus, using a business credit card responsibly by paying your bill on time can help you build credit over time, making it easier to get a business loan later.
- Secured business loans: Secured business loans allow you to use existing business assets, or assets you plan on purchasing, as collateral for a loan. Lenders are usually more willing to offer secured business loans (and more affordable interest rates on secured loans) because they can seize the asset if you default on your loan.
- Borrow from friends and family: According to the Federal Reserve Banks’ 2020 Small Business Credit Survey, 56% of entrepreneurs borrow from personal savings, friends and family to fund their business. Your loved ones may not be concerned with your credit score because they trust you and believe in your business plan.
- Small business grants: Small business grants are better than small business loans because you don’t have to pay the money back. The downside is that there’s a lot of competition for this “free money,” and you’ll need to spend quite a bit of time searching and applying for grants. Some good places to start your search include the SBA, Grants.gov and the U.S. Chamber of Commerce.
Bad credit business loans FAQs
Can I get a business loan with bad credit?
Yes, you may be able to get a business loan if you have bad credit. Several alternative business lenders approve applicants with personal credit scores as low as 500. Make sure you meet a lender’s additional requirements, which may include time in business or annual revenue.
What credit score do I need to get a business loan?
Business lenders typically prefer to work with business owners who have a score of at least 600. However, some lenders may accept a score as low as 500. The lower a lender’s credit score requirements, the higher the interest rates may be for bad-credit borrowers. Watch out for high interest rates or fees when applying for bad credit business loans.
What types of business loans are best for bad credit?
Certain types of business financing are better suited for business owners with low credit, such as working capital loans, invoice factoring and merchant cash advances. Financing that requires collateral, like equipment or inventory, may also be easier to obtain because collateral reduces the risk for lenders.
What should I do if I’m denied a business loan because of my credit?
If your loan application was rejected by a bank, consider applying with another lender. Each lender has its own requirements and eligibility criteria, so shop around to find one that is more receptive to working with you. You should also consider other forms of business financing, such as invoice factoring, accounts receivable factoring and merchant cash advances, as these are typically less dependent on credit.