How to Get a Business Loan With Bad Credit

Learn about bad-credit business loans.

Starting and running a small business requires dedication, passion — and money. You might not yet have enough cash flow to launch or expand your business, and you might be worried about how you can fund your business plans. You’ve likely heard of personal loans for bad credit, but you don’t often hear the words “small business loans” and “bad credit” together in a sentence. You might not know that small business loans and other forms of lending might still be available to you too if your credit isn’t up to snuff. Here’s the lowdown on how to get a start-up business loan, even if you have bad credit.

How to Get a Business Loan With Poor Credit

It’s possible to get a business loan, even if your credit is less than stellar. Improve your chances of getting approved for a loan by following these steps to get a business loan with poor credit:

1. Check Your Personal Credit

Get prepared before seeking small business financing by checking your personal credit with the three credit bureaus: Experian, Transunion and Equifax. Review your credit report to make sure everything’s correct, and dispute any errors you find.

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2. Check Your Business Credit

Next, check your business credit report through one of the credit bureaus or a company like Dun & Bradstreet — which collects and provides data regarding the credit activities of companies worldwide — and review the reports to ensure the information on them is correct. If anything is inaccurate, follow up to make sure it gets removed or corrected.

3. Gather Documents

Gather all documents that prospective lenders will likely request. Although the requirements can vary from lender to lender, plan on including your business and personal bank statements, business information — such as how long you’ve been operating and your net income — and information on your clients and customers. You’ll also need to provide legal documentation showing the ownership and structure of the business.

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4. Prepare to Make Your Request

Practice clearly explaining what you plan to do with this loan — your lender will ask. Be specific about your business plans and goals and be prepared to answer any questions about them.

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Small Business Funding Options for Borrowers With Bad Credit

Entrepreneurs and business owners can choose from several loans for people with poor credit. In addition to personal loans or home equity lines of credit, here are four small business funding options to consider:

1. Business Loan

When you get a business loan, you receive a lump sum of money. You then pay back the amount borrowed plus interest in a series of regular payments. Small business owners might use business loans to expand a business, hire new employees or purchase new equipment.

Getting a small business loan when you have a bad credit score can be challenging, but it isn’t impossible. You might be able to get a business loan through a credit union or community bank. But prepare to pay as much as 8 to 12 percent more for a bank loan than borrowers with good credit, according to the Small Business Administration.

See: 5 Banks That Make Starting a Small Business Easier

You can apply for SBA loans even if you don’t qualify for a traditional bank loan. These government small business loans are insured, which reduces the risk to lenders by guaranteeing to cover the repayment of a portion of the loan. The SBA offers both fixed and variable small business loan rates.

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In addition, the SBA provides special small business loans for women. Its Office of Women’s Business Owners has rules for business loans for women, which are in line with those for any typical loan or business line of credit. Women should also look into female-focused, small business grants, like the Eileen Fisher Women-Owned Business Grant Program. Application details depend on the type of SBA loan, but in general, you’ll need to provide information on the following:

  • Personal information, such as your name and address
  • Resume
  • Business plan
  • Personal credit report
  • Business credit report
  • Income tax returns
  • Financial statements
  • Bank statements
  • Collateral
  • Legal documents

2. Business Credit Card

Consider looking into business credit cards for bad credit. A business credit card works like a credit line for small business owners but might be easier to qualify for than bank loans, according to a Yahoo Finance report.

A business credit card can be a convenient way to establish business credit. But credit cards for businesses with bad credit come with higher rates — as much as 9 to 18 percent more, according to the SBA. The report showed that 80 percent of businesses credit card applications get approved and that the average annual percentage rate of online business credit card offers as of June 2016 was close to 13 percent.

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Find Out Which Is Better: Business Loan or Business Credit Card

3. Microloan

A microloan is a small business loan, usually of $50,000 or less. Funds come from non-profit, community-based organizations like Kiva, which offers very small loans at 0 percent interest, or even through the SBA’s microloan program, which typically offers an APR between 8 and 13 percent. A microloan suits start-up businesses, people facing credit issues, or businesses that fall into specific groups, such as those in rural or disadvantaged parts of the country.

4. Revenue-Based Loan

If you don’t have collateral or a good business credit score but can steady growth of solid cash flow, consider a revenue-based loan. The payments depend on your monthly revenue and bank deposits, with a portion of each bank deposit going toward the loan repayment. It’s hard to pinpoint a typical APR, but you could pay 1.5 to 2.5 times your principal revenue-based loan amount.

How to Improve Your Credit Before Applying for a Business Loan

If your business financing application is rejected, research other options, like a home equity line of credit or consider an online loan option through an alternative lender.

Next, try to set up credit relationships with vendors — like suppliers, wholesalers, leasing companies and other financial institutions — who will report your payments to the business credit reporting agencies. Make all of your payments in full and on time to improve your business credit score.

Although getting business loans or business financing might be tough when you have bad credit, you have options. Don’t give up if the first answer is no — work on improving your credit, then try again.

Keep Reading: Best Peer-to-Peer Lenders — Prosper, Lending Club and More


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About the Author

Sarita Harbour

Sarita Harbour is a former financial advisor and banker. She holds the Personal Financial Planning Designation through the Institute of Canadian Bankers, a designation equivalent to the CFP, as well as a B.A. Honors in Psychology from the University of Guelph.  With over 12 years of banking experience plus another 10 years as a personal finance and business writer creating content exclusively for online audiences, Sarita's work appears on some of North America's most well-known sites such as Forbes, Investopedia, TIME/Money, plus numerous financial institution and insurance web sites. When she isn't writing, Sarita is busy homeschooling her youngest two of seven children, gardening, chasing her chickens, and homesteading off the grid.

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