How to Get a Business Loan with Poor Credit – 6 Tips

Having a bad credit score can often put you out of the running for certain business loans, but the good news is that there are many other alternative financing options available. A bad credit score doesn’t have to keep you from securing the funding you need to start or grow your business.

The key is to do your research to find the best financing options for your unique situation.

In this guide, we’re covering how to get a business loan with bad credit, how to compare the best financing options, and even how to improve your score to get the best terms on your loan.

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What Qualifies as “Bad” Credit?

On the FICO Score scale from 300 to 850, a “bad” credit score is one below 670. To be more specific, a score between 580 and 669 is considered “fair” and one between 300 and 579 is considered “poor”.

Having a “bad” credit score may impact your eligibility for business loans, as lenders like to see a strong credit history and ability to pay off past debts. A low score could mean limited financing options and/or worse terms – such as a high interest rate – on your loan.

How Does Having Bad Credit Impact Loan Eligibility?

A bad credit score makes you a “risky” borrower in the eyes of lenders. Even if you have a high salary and no outstanding debt, a poor score can indicate that you have been inconsistent in the past or don’t have a history of being able to manage a significant amount of credit.

With a poor score, chances are a lender will not approve your application, or, if they do, they may hit you with high interest rates. This can be a tough situation for business owners who need capital in order to get their business or startup off the ground.

Traditional lenders will look at your credit score in order to determine eligibility for a loan. Alternative financing sources (like online lenders), however, often look at a variety of financial indicators beyond your credit score to offer more flexible options.

Do I Need a Business Credit Score to Get a Business Loan?

If you’ve been in business for less than a year, you don’t need a business credit score in order to get a business loan. With limited credit history, lenders won’t have enough information to go off of when it comes to qualifying you for a loan. Instead, they will look at your personal credit score.

If you have been in business for more than a year, lenders will look at both your business credit score and your personal credit score. In any case, most lenders expect to see a credit score of 650 or above before they approve you for a loan, however, some even require a score of 680 or more.

How to Get Approved for a Business Loan with Bad Credit

Bad credit doesn’t have to weigh you down. There are ways to secure funding for your small business or startup through alternative financing methods.

Of course, we also encourage you to improve your credit score so you can get the best terms possible.

1. Check Your Credit Score

Before applying for a business loan, you gotta know what kind of credit score you’re working with. Your credit score can fluctuate, so it’s best to get the most recent score possible. Having this in hand will help you be realistic about what types of financing you may or may not be eligible for.

The Fair Credit Reporting Act (FCRA) entitles you to a free copy of your credit report from each of the national credit bureaus — Equifax, Experian, and TransUnion – every 12 months. You can check your credit score by:

You can also create your own myEquifax account to get six free credit reports per year, or use any of the online credit check platforms like or

2. Review Your Credit Report

Once you have your credit report, you should review it for any errors. Sometimes, you’ll be able to reach out to the credit bureaus and dispute these mistakes, getting them taken off of your report. You’ll also be able to see any outstanding debts and pay them off, assuming you have the financial means to do so.

Sometimes your credit score will reveal things you weren’t aware of, and then you can take action on them in order to improve your score. Other times, there is little you can do aside from slowly build up your score.

Knowing this information can help you determine the types of loans you’re most likely to qualify for.

3. Research Financing Options

Sometimes it can be tempting to try and take out a large business loan with the idea that a larger investment means a larger reward. But there are a few unfortunate scenarios that may arise if you approach borrowing with this mentality:

  1. The lender doesn’t approve the loan amount and you are denied funding
  2. You take out more than you need and accumulate more debt due to the interest
  3. Your repayment terms are outlandish and you find yourself in a massive amount of debt
  4. You spend the money too quickly or without proper planning, so you don’t see the returns you expected

For all of these reasons, you must do proper research to find a business loan for the amount you need at 1) the lowest cost and 2) the best repayment plan possible.

With a poor credit score, you’re already in a precarious financial situation. Don’t take on undue debt (and stress) by borrowing more than you can realistically afford to repay.

Take your time to research your options – both traditional and alternative – to find the best option for your business. Later on, we’ll discuss the best kinds of loans for business owners with bad credit.

4. Draft a Business Plan

Some lenders ask that you provide a business plan along with your loan application so they can consider it when it comes to your eligibility for a business loan. Your business plan will provide the lender with more details on how the money will be used and how you plan to pay it back.

In general, writing a business plan is always a smart move. Doing so may help you foresee any money management problems, identify gaps in your marketing strategy, assess your profit margins, and more. Having a detailed business plan may keep you from making costly mistakes with your business finances.

A typical business plan includes:

  • A summary of your business
  • An explanation of the services or products offered
  • A report on expected market and revenue growth
  • A summary of short- and long-term business goals
  • Specifics about where you are offering your services
  • Details on how you plan to make a profit

Should You Offer Collateral?

To give yourself some leverage, you may want to offer up some collateral. A lender will take your collateral in the chance that you are unable to pay back your loan.

We highly recommend avoiding offering up your personal assets – such as your home or car – as collateral, because you risk losing these AND your business if you are unable to pay back your loan. Instead, you can use business assets like equipment, or offer a portion of your future receivables.

5. Find a Cosigner

Another option is to find someone with a good credit score who is willing to cosign on your loan. This may be a business partner, a spouse, a friend, etc.

The critical thing to note is that this person is guaranteeing that they will take over the loan if you can’t afford to pay it off. So, you need to confirm that this person is financially able to do so and that you are both comfortable with this arrangement.

In this case, don’t take out more money than either of you can afford to lose. Be realistic about the amount of money you need to borrow and make sure you’re 100% clear on the repayment terms.

6. Improve Your Personal Credit Score

Our last but perhaps most obvious tip here is to take steps to improve your credit score.
While there are alternative funding options available, your best bet is always to secure a loan with a low interest rate and flexible repayment terms. This is made possible by having a good credit score.

Follow our tips below to improve your chances of securing an affordable business loan.

How to Improve Your Odds of Getting a Small Business Loan

Having a bad credit score is not a deal breaker when it comes to landing a business loan, but it can make things more difficult. To improve your odds of qualifying for a loan, understand these factors before you apply:

  • Compare traditional vs alternative lenders. Traditional lenders (such as banks and credit unions) often have strict requirements when it comes to loan approvals. They usually demand a multi-page application, three year’s worth of financial statements, your business plan, and weigh your personal and business credit scores more heavily. On the other hand, alternative lenders have more lenient requirements and look at a variety of factors beyond credit score. Often, they ask to see your bank statements to see whether you could realistically pay off your debt. Some alternative lenders approve loans within a matter of minutes, while traditional lenders can take months. You should explore all options before deciding on the best loan for you.
  • Improve your credit score. 650 is the minimum personal credit score needed to qualify for a traditional business loan. At the same time, many alternative lenders have minimum credit score requirements. To get a loan with the best terms possible, you should take steps to improve your credit score over time. Start by settling any late payments and disputing any errors on your credit report. Continue to pay your bills on time – including your credit card, loan payments, rent, utilities, etc. Finally, don’t apply for any new credit accounts during this time, as this can negatively affect your credit score.
  • Reassess your business plan. Look at your business plan and see if there are any areas where you can maximize revenue and minimize expenses. This will help reduce the amount of funding you need and will help your business become more profitable overall. Once revised, you can often have lenders look back at your business plan to give you another chance. Do everything you can to make your business plan appealing to lenders.
  • Get your business documents in order. As part of the loan application, traditional lenders usually require three years’ worth of tax returns and financial statements. If you haven’t been in business for that long, getting these documents together may be impossible. With this in mind, you may want to wait until you have three years’ worth of documents, or seek out alternative lenders with more lenient requirements.
  • Know what you’re looking for. There’s little worse than applying for a loan, just to tell the lender you don’t know how much you need, what terms you are looking for, and what repayment plan you envision for the future. To come across as an informed borrower, you need to know what you’re looking for. That means determining how much you need to borrow, how long you need the loan for (loan term), your preferred interest rate, and what loan fees you can afford. With this information, you can make informed financial decisions and present yourself as less “risky” to the lender.

Best Business Loans for Bad Credit – 2020

When securing a traditional business loan isn’t an option, your best bet is to work with lenders who offer flexible financing to business owners with bad credit. Listed are a few of the best bad credit business loans for borrowers in 2020.

  • Microlenders: Microloans are perfect for business owners who only need a small amount ($500-$10,000) of capital. These microloans are usually offered by nonprofits that support underprivileged communities, minority-owned businesses, and social enterprises. If you fall into one of these categories, a microloan could be an option for you, as a low credit score isn’t a deal breaker for most microlenders. Kiva and Accion are two of the most popular microlenders online.
  • Business Credit Cards: Since you already have a bad credit score, getting a business credit card may sound like a terrible option. In reality, a business credit card can give you the capital you need and help you build up your business credit score. Just note that credit cards have higher interest rates than most loans, so you’ll want to limit your credit line to a small amount of money that you can afford to pay off. Just be sure that your credit card reports your payments to the credit reporting agencies – not all of them do. Pay this card off on time in order to improve your score.
  • Short-Term Loans or Lines of Credit: As the names imply, these types of financing provide short-term funds in a pinch. Many business owners use short-term loans or short-term lines of credit when they’re in need of working capital – like to cover payroll or stock up on inventory. These short-term options typically range from 6 to 24 months.
  • Merchant Cash Advances (MCAs): A merchant cash advance isn’t really a loan, but a cash advance based upon the credit card sales deposited in your business account. So, businesses that accept a high volume of credit card payments may qualify for this lending option. You can apply for an MCA and get funds sometimes as quickly as 24 hours after approval. Your payment is then based on your sales.

FinTap offers merchant cash advances to business owners, regardless of credit history. Our goal is to provide capital you need by considering a range of factors beyond your credit score. Apply for financing with FinTap.

Frequently Asked Questions

Got a bad credit score? The good news is that there are alternative options available beyond the traditional lenders. You may still be able to secure the funding you need with a repayment plan you can afford. It’s time to help your business growth.

If you have more questions about qualifying for business financing, check out our Frequently Asked Questions section below or Contact Us directly.

Yes – but it can be very difficult. Traditional lenders typically expect a credit score of 650 or above in order to qualify you for a business loan. If your credit score is below 650, you may want to consider alternative funding options, such as microloans or revenue based financing.

Business loan lenders typically look at both your personal and business credit when determining what you qualify for. If your business is under a year old, however, they may not look at your business credit score as there will be limited financial history available. Your goal is to have the best business and personal credit score possible to secure the ideal interest and payment plan for you.

Applying for a traditional business loan – especially with a poor credit score – can be a difficult process. Traditional lenders typically require a multi-page application, years of financial documents, and more. The process can take months to get approval. Alternative and online lenders, however, are less strict, and you can sometimes secure funding within a few hours.