How to Get a Business Loan With Bad Credit

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Financing is famously difficult for small businesses to get, and if you have a poor credit score, you’ll face even more challenges in getting a loan. However, if you’re willing to put in the work and explore alternative financing options, you can still get approved for a business loan despite your credit score.

Can You Get a Business Loan With Poor Credit?

In short, yes. However, you’ll encounter even more difficulty in getting a loan in what’s already a notoriously hard process. You can also expect to see less favorable terms--whether that’s higher interest rates, more frequent payments, shorter period of time, higher collateral requirements or all of the above. And even if your business has strong revenue, profitability and growth, you still won’t qualify for the lowest rate or the best terms.

You’ll need to work harder to get a lender to look at your application and approve it. To increase of your odds of being approved, we recommend applicants put together a strong business plan and financial statements. Get help preparing and reviewing these documents by contacting local business associations and a certified public accountant. You should also be prepared to explain your past credit history and what steps you are taking to improve your credit score.

Making on-time payments is one of the most influential factors in improving your credit score. If you haven’t been paying on-time, start now. Very few lenders will lend money to someone who is currently delinquent on a loan or credit card. You should also work on paying down existing debt you have as carrying too much debt will also decrease your score. You can often negotiate lower payments or interest directly with your lender to speed up the process.

What Are Your Options?

While some traditional financing options may not be accessible to you, there are many other options available on the market.

Bank or Credit Union Loans

It’s not impossible to get a bank or credit union loan if you have bad credit, but you can expect stricter collateral requirements and higher interest rates. We recommend applicants approach a bank or credit union they have worked successfully with in the past. A banker who knows you will be more likely to push for an exception when the bank committee votes on your application. Credit unions, in particular, are generally more likely to work with non-prime borrowers, or borrowers with credit scores under 700.

Online Loans

Many online lenders cater specifically to borrowers whose credit score prevents them from qualifying at a bank, and they offer all types of loans, amounts and terms with very quick application processes. However, you generally can’t borrow as much or at the same rates as through a bank.

LenderMin. Credit ScoreRatesAmountsApply Now
KabbageNone20.00% - 80.00%$2,000 - $150,000Apply Now
FundboxNone15.00% - 59.00%$100 - $100,000Apply Now
PayPal Working CapitalNone15.00% - 30.00%$1,000 - $200,000Apply Now
OnDeck5009.30% - 99.70%$5,000 - $500,000Apply Now
Credibly6509.99% - 36.00%$50,000 - $250,000Apply Now
QuarterSpot55020.00% - 48.00%$5,000 - $200,000Apply Now
SnapCap55019.99% - 49.99%$5,000 - $600,000Apply Now

Specialty Financing

Specialty financing is another option entrepreneurs with poor credit should consider. In most cases, the loan or financing product will be secured by some sort of collateral, whether that’s unpaid invoices, contracts, equipment or inventory. These types of products might have lengthier application processes than a standard online loan as the lender may want to perform due diligence on the collateral being used. Interest rates on these products may also be higher than with a standard loan.

LenderMin. Credit ScoreRatesAmountsApply Now
FundboxNone13.00% - 60.00%$100 - $100,000Apply Now
CurrencyNone1.40% - 10.1%$50,000 - $15 millionApply Now
BlueVine53015.00% - 68.00%$20,000 - $5 millionApply Now

Invoice factoring, accounts receivable financing or contract financing: With this option, you receive an advance on unpaid invoices, accounts receivable or contracts. The factoring company will give you a 80% to 90% advance. Once your customer pays, you receive the remaining amount less fees charged by the factoring company. Many factoring companies have very lenient credit requirements.

Equipment financing: The equipment you’re purchasing will be used as the collateral to secure the loan. While lenders won’t require perfect credit to qualify for an equipment loan, you’ll still need a personal credit score of 600 or above.

Inventory financing: Similar to equipment financing, the inventory you’re purchasing will be used to secure the loan. It usually works similarly to a line of credit as you can continually draw from it to purchase inventory. Typically, you won’t be able to finance the full value of the inventory--rather, only up to 80% of its appraised value. There is usually a lengthy due diligence process to inspect the inventory and warehousing facilities.

Merchant Cash Advance

Merchant cash advance providers give funds to a small business with a percentage of the business’s future revenue as repayment. This is typically a cut of the business’s daily credit card sales. Two of the major benefits of getting a merchant cash advance are the speed and relaxed eligibility criteria. Most cash advance providers do not have strict credit requirements. However, this speed and convenience comes at the price of high interest rates and frequent repayment.

Microloans

Microloans made by nonprofits or through SBA-affiliated lenders may come with more relaxed credit criteria. Accion, for instance, only requires a credit score of 575 to qualify for some of its loan products, and Kiva, which offers interest-free microloans, has no credit criteria that applicants need to meet. The main downside to microloans is the low loan amounts. Most microloans are under $50,000, and some are even under $10,000. Depending on which lender you use, the application process could be lengthy with funding time taking a few weeks to two months.

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