How to Get a Small Business Loan With Bad Credit

Getting the finances you need to grow your business isn’t easy. Securing funds is especially hard if you have poor credit. You need to know your options for business funding with bad credit.

What is bad credit?

Your credit score reflects how much lenders trust that you’ll repay borrowed money. The higher your credit score, the more reliable you are considered as a borrower.

You get bad credit by failing to honor past credit agreements. For example, late payments and loan defaults affect your credit. Or, you might have charged high balances, had a vehicle repossessed, or filed bankruptcy. These kinds of events have a negative impact on your credit score.

Credit scores range on a scale from 300 to 850. Generally, you have poor credit if your score falls below 620. You need to check your credit report to find your credit score. U.S. citizens are entitled to one free report from the credit bureaus per year.

Can I get a business loan with bad personal credit?

When you’re starting a business with bad credit, you have a disadvantage. Your company hasn’t established credit yet. To get financing, you need to rely on your personal credit score. Your personal financial history shows lenders how responsible you are with managing debt.

Even if your business has credit, lenders will still consider your personal credit score when you apply for a loan.

Banks look heavily at your credit when reviewing you for funding. Your credit score is a big indicator of the level of risk you pose to lenders. A bad personal credit score could make it hard for you to get approved for a startup loan. Poor credit indicates a greater chance of you defaulting on the loan.

Though it’s more difficult, you can get approved for a loan with bad credit. The loan terms are usually not the best. You will likely have a higher interest rate and lower spending limit than standard amounts.

To get a loan with bad credit, you will need to show the bank your business’s accounting records for the past three years. If you own a new business, you will need detailed income and sales projections, as well as a business plan. These documents help prove your creditworthiness and convince lenders that you can make repayments.

Business funding with bad credit

It’s not impossible to get business financing with poor credit. Take a look at the following options on how to get a small business loan with bad credit.


Microloans are like traditional bank loans, but they come from alternative lenders. For example, a credit union is an alternative lender that might offer microloans.

Microloans are easier to get approved for than traditional loans because the loan amounts are small. Usually, microlenders grant loans worth $50,000 or less.

The Small Business Administration has a microloan program. The SBA will cover some of the costs if you’re unable to make payments, so you are less risky to lenders.

Business credit cards

You could open a credit card in your business’s name to solve smaller funding issues. The bonus: making payments on a business credit card can improve your credit score.

A business credit card could be a good option because you pay back what you spend, plus interest. Credit cards also offer a continuous line of credit for bad debt. Like a revolving line of credit, you can pay down the balance and use the card again without needing to reapply. Keep in mind that revolving debt vs. installment debt will have different consequences for your small business.

The downside of a business credit card happens when you don’t pay your balance off at the end of the month. Leaving a balance could cause you to incur a lot of interest. Most business credit cards have rates in the 20% range. Usually, credit cards for poor credit have higher interest rates.

Merchant cash advance

Also called a business cash advance, this option lets businesses that accept credit cards or receivables get an advance on the money that regularly flows into the company. Business cash advances are not the same as small business loans for bad credit. It is an advance based on future revenues or credit card sales.

Business cash advances are available to companies that need help managing cash flow problems. If you need $10,000 or less, consider a cash advance.

Merchant cash advances have high interest rates, so you end up paying more on the total loan amount. Make sure you can make repayments before getting a business cash advance. Failing to make payments on the advance could further damage your credit.

Bad credit small business loans

As the name implies, bad credit startup business loans are offered to small business owners who have bad credit. You can receive terms with loans for very bad credit that you might not have been eligible for with traditional loans.

Usually, small loans for bad credit are available to established companies with financial histories. Businesses less than one year old might not qualify for a bad credit small business loan.

Often, bad credit small business loans are given by online lenders. Lenders offer unique limits, interest rates, and requirements, so you should shop around before choosing one.

Small business grants

If you’re willing to put in extra effort, pursuing a small business grant might be a way to finance with bad credit. Grants are “free money,” meaning you don’t have to pay them back.

Grants are usually very specific. Many grant providers target very narrow categories based on industry, location, and demographics. You must meet certain criteria in order to be considered.

Grants also tend to be hard to locate. You can find some small business grants on search tools, like Also, check out local organizations and government agencies to see who offers grants.

When you receive a grant, you have strict guidelines on how to use the money. If you don’t follow the rules set by the grant provider, you might have to pay the money back.

Need a simple way to keep track of your business’s finances? Patriot’s online accounting software is easy-to-use and made for small businesses and their accountants. We offer free, USA-based support. Try it for free today.

This article has been updated from its original publication date of August 17, 2017.

This is not intended as legal advice; for more information, please click here.

Stay up to date on the latest accounting tips and training