Compare Small Business Loans
If you have poor to fair personal credit—which is any personal credit score below 679—you will face difficulty when it comes to getting a small business loan from a traditional funding source, such as a bank. However, many alternative and nonprofit lenders believe that credit scores are not always the most important factor to consider when lending to a business owner, and they have stepped in to fill this funding gap. We analyzed more than 30 different lenders to find the best small business loans for business owners with bad credit, and we’ve listed our top picks below.
Best Business Loans for Credit Scores Under 500
Borrowers with credit scores under 500 have options when it comes to getting financing. However, many of the options are not generally term loans.
We recommend Kabbage for entrepreneurs looking for a revolving line of credit. In our opinion, the way that Kabbage evaluates potential borrowers makes its line of credit a strong fit for business owners with shaky credit. Unlike banks or credit unions, Kabbage does not require a minimum credit score to qualify for a credit line. Instead, the lender looks at your business’s real-time revenue and financial data from bank accounts and other accounts, such as eBay, Amazon, Quickbooks, PayPal, Etsy and Square. If you can demonstrate strong and consistent revenue, you’ll increase your chances of qualifying. Depending on the size of the credit limit you’re looking for, Kabbage has different eligibility criteria. For a limit up to $100,000, you’ll need to be in business at least one year with $50,000 in annual sales. For limits over this amount, Kabbage requires at least $500,000 in yearly revenue and three years in business.
Drawbacks: Fees are often higher in the first few months and then taper off toward the end of the term, which means that prepaying won’t save you a lot of money. Repayment is only offered in six- or 12-month terms. Like all products listed here, the lack of strict credit requirements translates to higher than average annual percentage rates (APRs).
Similarly to Kabbage, Fundbox does not require applicants meet a certain credit score threshold to qualify for funding, so it’s one of the few options available to borrowers with low credit scores. Fundbox offers both invoice financing and lines of credit, but the company is known for its invoice financing product. In order to qualify for invoice financing, applicants must demonstrate that they’ve been in business at least three months, use accounting software—such as Quickbooks, Freshbooks or Xero—and haven’t had any bankruptcies in the past two years. Fundbox differs a little bit from traditional invoice factoring in several beneficial ways. Unlike traditional factoring, you will receive a 100% advance on your unpaid invoices, and you repay Fundbox directly. For comparison, most factoring companies will only advance up to 85% of an invoice and require your customers to repay the factoring company.
Drawbacks: The credit limit for invoice financing only goes up to $100,000, so it won’t be a fit for high-revenue businesses. You’ll be required to make weekly repayment for invoice financing, instead of paying a lump sum when the invoice comes due. This may be more onerous for your cash flow than a traditional invoice factoring arrangement.
Best Unsecured Business Loans for Bad Credit
Getting an unsecured business loan can be difficult, even for borrowers with great credit. However, there are several online lenders that offer unsecured business loans to applicants who may not have perfect credit scores.
QuarterSpot is one of the few alternative lenders that offers truly unsecured loans to applicants with less than perfect credit. The company does not file a blanket lien on your business assets or require a personal guarantee when you take out a loan, which is uncommon. The company is also a good choice if you have an outstanding loan. Many lenders won’t lend to business owners who have an existing loan, but QuarterSpot will—the company will even buy out up to two outstanding loans while only requiring merchants to net 20% of the loan proceeds. To qualify at QuarterSpot, you’ll need to have a personal credit score of at least 550, your business will need to have at least $200,000 in annual revenue, and be operational for at least one year. Other requirements regarding your business bank account and derogatory marks on your credit report apply.
Drawbacks: APRs at QuarterSpot are high, but this is true of most lenders that have lower qualification thresholds. Like many online loans, these loans require frequent repayment—daily or weekly—and have short terms, which doesn’t allow your business much time to accrue cash for repayment. You can also only borrow up to $200,000, an insufficient amount for many businesses.
Not only does Credibly not require any collateral or blanket liens for loans of $100,000 or less, but the lender requires applicants have a personal credit score of 500 to be eligible for its working capital loans. Other criteria for the working capital loan include being in business at least six months, having at least $10,000 in monthly sales, at least $15,000 in deposits each month to your business bank account, and an average daily bank account balance greater than $1,000. The company also provides merchant cash advances with similar features and eligibility criteria as the working capital loans—the main difference being no collateral or personal guarantee required for a cash advance of any amount, up to $250,000. The merchant cash advance also offers terms as short as four months.
Drawbacks: For its term loans, Credibly does require a personal guarantee from borrowers, so while your business assets won’t be at risk, your personal assets will be. However, no personal guarantee is required for the merchant cash advance product. Due to the short-term nature of working capital loans and merchant cash advances, repayment will be more frequent and interest costs will be higher than a standard term loan.
Best Equipment Loans for Bad Credit
Even if you have poor credit, getting an equipment loan is possible. Since equipment loans are normally secured by the equipment you’re purchasing or a blanket lien, lenders may be more forgiving with their credit requirements.
A few things about SnapCap stand out to us: higher loan amounts, faster funding and fewer eligibility requirements than other alternative lenders. SnapCap lets business owners apply for up to $600,000 in funding, which is more than what even big-name lenders such as OnDeck can offer. There are no limitations on how business owners can use loan proceeds, so these term loans can be used to purchase machinery, equipment, vehicles, or any other type of business asset you may need. Once approved for a loan, you can receive funds from the company in as quickly as 24 hours. Business owners looking to qualify at SnapCap should have a FICO score of 550 or more, and their business should be at least nine months old with $10,000 in monthly revenue. Your business bank account must also show five or more unique deposits per month and an average monthly balance of at least $1,000.
Drawbacks: Like many other lenders on this list, APRs will be higher than what you would get on a conventional loan or even a prime online loan. SnapCap requires daily or weekly repayment, and charges an origination fee of 2.5% on each loan.
Besides SnapCap, OnDeck offers some of the largest loan amounts with similarly lenient credit requirements, making it another option for financing equipment purchases. The company offers loan amounts as high as $500,000 with terms of up to three years, and—like SnapCap—you can expect to receive money within 24 to 48 hours after you sign the loan agreement. If you plan on taking out multiple loans from the same lender, we also suggest OnDeck as the company reduces one-time origination fees with each subsequent loan you take out. By your third loan, for instance, the fee may be completely gone. This reduction in fees can help lower the APR on each new loan you take out. If you’re thinking of applying, make sure you have a personal credit score of at least 500, that your business is at least one year old, and makes $100,000 or more in revenue each year.
Drawbacks: While OnDeck advertises single-digit starting rates, borrowers with poor credit are unlikely to qualify for these rates. In fact, the average APR on a term loan from OnDeck was 45.2% for the third quarter of 2017. Like most other lenders in this roundup, OnDeck requires its borrowers to make either daily or weekly payments on term loans.
Best Startup Loans for Bad Credit
While you may think getting a loan for your startup is unlikely if you have a bad credit score, there are options available. Some nonprofit lenders cater to new entrepreneurs with limited credit history.
Accion is great for new entrepreneurs who have below-average personal credit. The organization offers loan programs in all states—except Vermont—and provides loans of $300 to $1 million with interest rates between 7.5% and 34%, though the startup loan programs generally offer lower amounts with higher rates. To see what funding options are available in your state, visit Accion’s website. Most of the programs require you to have a minimum credit score of 575, but some programs have lower or no minimums, and the startup loan programs don’t typically have requirements for time in operation or annual revenue. However, startups may be required to present a business plan with cash flow projections and recent pay stubs, and to have less than $500 in past-due debt. You may also need to demonstrate an additional income source. If your application is denied, Accion will provide you with information about how you can improve your business plan and application to qualify the next time you apply.
Drawbacks: Most of the startup loan programs offer loan amounts of $15,000 or less, which may not be adequate to get your venture started. One exception is the SBA Community Advantage Program through Accion, but you will need to fund at least 20% of the total costs and provide a detailed business plan. If you’re rejected from Accion, you will need to wait at least three to six months before reapplying.
Another source of funding entrepreneurs should consider for their new enterprise is a personal loan. We recommend Upstart because the lender offers personal loans of up to $50,000, lets applicants use the funds to start or expand a business—some lenders do not allow funds to be used in this way—and requires of a FICO credit score of only 620 to qualify. Other criteria apply to qualify for a loan. In addition to your credit score, Upstart considers your educational history and employment history when making a loan decision. This means that having completed a four-year degree or having a stable employment history will improve your chances of qualifying. Like most online lenders, you will be able to check your rate without affecting your credit score. Upstart also does not charge any prepayment penalties, so you can always pay off your loan earlier than the stated maturity.
Drawbacks: Loans are only available in three or five year terms, but they can be paid off earlier without penalty. In order to qualify, you must be able to demonstrate a source of income, whether from a full-time job, part-time job or some other source—would-be entrepreneurs shouldn’t quit their day jobs before applying. If your credit score precludes you from qualifying, consider Accion instead. Upstart is not available to residents of West Virginia.
How to Find a Small Business Loan When You Have Poor Credit
Small business owners frequently have trouble getting funds from traditional lenders because they often cannot meet the strict eligibility requirements. Business owners with poor personal credit face more obstacles when applying for financing, even from alternative lenders that generally have laxer eligibility criteria. However, it’s still possible to receive a loan if you can make a strong case to your lender. We outline some steps below to help you improve your chances. For a more detailed look at the steps you can take, read our article here.
Create a Strong Business Plan
The best way to improve your chances of being approved is to have a strong business plan with clear goals. Your plan should make it easy for a lender to see why your business will be successful, and how the loan will contribute to that success. A business plan should include an executive summary, descriptions of your products, services and industry, an analysis of your competitors, a go-to market strategy, an operating and management plan, financial statements and projections, and a background on each principal of the business. You should also enumerate in the plan exactly how the loan proceeds will be used. Be as specific as possible, even down to the line item. You can get free help on your business plan through organizations such as SCORE, or local business centers. The Small Business Administration (SBA) keeps a list of these organization on its website.
Take Steps to Fix Your Credit
Make every effort to repair your damaged credit, which includes paying your bills on time, cutting costs, and reducing credit card usage. In particular, focus on paying your bills on time and in full as payment history is the largest determinant of your FICO credit score. Pay down any existing debt you have, and avoid taking out unnecessary debt. You can check your credit report for free once a year at each major credit reporting bureau, so keep track of the progress you are making. It can take years to fix a damaged credit score, but actively taking steps toward improvement will benefit you and your business in the long run. When you’re ready to apply for a loan, tell lenders what steps you’ve been taking to repair your credit history as this can help your application.
Consider Less Traditional Options
Besides traditional term loans and lines of credit, small business owners with bad credit should also consider other ways of getting funds—such as secured small business credit cards, invoice factoring, merchant cash advances, personal loans and business grants. You may also be approved for a loan or qualify for a lower rate by putting up collateral or personally guaranteeing the loan. These strategies are not without their risks, but they can be a viable option if your credit has precluded you from many loan options. In most cases, if you qualify for financing, you will see much higher rates than a borrower with good credit would. Understand how much you’ll pay back in total and decide whether that’s a number you’re comfortable with.
Compare Small Business Loans
Our Methodology for Choosing Our Top Picks
In our review of small business loans, we considered the following criteria:
- Reasonable interest rates: When it comes to business financing, receiving a good interest rate on a loan is crucial, and it pays to shop around. We looked for lenders that offered reasonable interest rates based on the credit profile of borrowers—in this case, borrowers with poor to fair credit. In general, borrowers with poor credit won't qualify for the same APRs as creditworthy borrowers, but they still shouldn't be paying exorbitant interest on a loan.
- Transparent eligibility requirements: Because applying for a business loan can affect your personal credit score, it's important to know if you are eligible before applying. Otherwise, it's a waste of your time. We looked for lenders that offered specific criteria on the types of businesses and owners they lend to.
- Range of loan terms: Do the lenders offer a range of loan amounts and terms? Businesses need to borrow different amounts based on the planned use of funds. Depending on a business's cash flow cycle, a shorter or longer maturity may be better.
- Few restrictions on loan use: With the exception of commercial real estate loans, we looked for general purpose loans that businesses could use for equipment or machinery purchases, working capital, inventory or other needs. Being able to use funds flexibly and as needed makes a loan a more attractive option for many business owners.
- Time to receive funds: We looked for lenders that either offered quick funding time or were transparent about how long funding takes. Many lenders now understand the importance of getting funds to businesses quickly, so we favored lenders that offered reasonable approval and funding times.
- Ease of application process: In the past, bank and SBA loans were notorious for lengthy application processes, but as lending has moved online, borrowers are looking for loan applications that are easy to complete. Online lenders typically fit this bill, though banks and the SBA have started offering streamlined application processes.
- Lender reputation: With the rise of online lending, it's easier than ever for a business owner to get a loan from a less reputable source—and that’s a problem. While many online lenders are credible, we looked for lenders that had positive review or Better Business Bureau (BBB) ratings and had been in business at least several years.