The 5 Best Business Loans for Bad Credit

Securing a business loan with bad credit can be challenging, but it’s not impossible. Many lenders understand that a low credit score doesn’t necessarily reflect the potential of a business, especially if the business is new or experiencing temporary financial struggles. Here are five types of business loans that are more accessible for business owners with bad credit:

1. Microloans

• What They Are: Microloans are small loans typically offered by nonprofit organizations and government-backed programs. These loans are ideal for startups or small businesses looking for smaller amounts of capital to help grow or stabilize their operations.
• Who Offers Them: The Small Business Administration (SBA) offers 7(m) Microloans, which can go up to $50,000. There are also other microloan programs offered by Kiva, Accion, and other community-focused lenders.
• Why They’re Great for Bad Credit:
  • Microloans usually have less stringent credit requirements.
  • They often have more flexible repayment terms and lower interest rates.
  • They focus more on the business’s potential than on personal credit scores.
• Example: Accion offers microloans with flexible credit requirements, and they specialize in helping businesses with lower credit scores.

2. Online Lenders (Alternative Lenders)

• What They Are: Online lenders often have more relaxed criteria compared to traditional banks and are willing to work with businesses that have bad credit. These lenders typically approve loans faster and have a simplified application process.
• Who Offers Them: Popular online lenders include OnDeck, Fundbox, BlueVine, and Lendio.
• Why They’re Great for Bad Credit:
  • Less stringent credit requirements than traditional banks.
  • Fast approval process and funding (typically in 1-3 business days).
  • Some online lenders focus more on cash flow and business performance rather than your credit score.
• Example: OnDeck offers short-term loans and lines of credit to businesses with bad credit. They also consider annual revenue and business history when evaluating applications.

3. Invoice Financing

• What It Is: Invoice financing allows you to borrow money against your outstanding invoices. This is ideal for businesses that have slow-paying clients but need immediate cash to cover expenses.
• Who Offers It: Companies like BlueVine, Fundbox, and MarketInvoice specialize in invoice financing.
• Why It’s Great for Bad Credit:
  • Your invoices, not your personal credit, are used as collateral.
  • Can be easier to qualify for than traditional loans because the lender is focused on the creditworthiness of your clients.
  • Works well if you have strong clients but need liquidity.
• Example: BlueVine offers invoice factoring and lines of credit, which can be used for short-term cash flow needs without a focus on credit scores.

4. Merchant Cash Advances (MCA)

• What They Are: A Merchant Cash Advance provides funding in exchange for a percentage of your daily credit card sales. This is a quick way to access capital, especially if your business processes a lot of credit card payments.
• Who Offers Them: Companies like OnDeck, RapidAdvance, and Square Capital offer MCAs.
• Why They’re Great for Bad Credit:
  • Fast approval and funding—you could receive the funds within a few days.
  • Credit score is not the primary factor; lenders typically look at your business’s revenue and credit card sales volume.
  • MCAs are easy to obtain even with bad credit because of the way repayments are structured.
• Example: Square Capital offers Merchant Cash Advances to businesses that use Square for processing credit card payments. The loan is repaid via a percentage of daily sales.

5. SBA Microloan Program

• What It Is: The SBA Microloan Program is designed to help small businesses, especially those owned by minorities, women, or veterans, access funding. The SBA itself doesn’t provide the loans but guarantees them through intermediary lenders, such as nonprofit lenders, which often offer more flexible lending criteria.
• Who Offers Them: SBA-approved microlenders.
• Why It’s Great for Bad Credit:
  • The SBA has more relaxed credit requirements compared to traditional lenders.
  • Loans are designed for startups and small businesses, and can range up to $50,000.
  • The SBA has a focus on helping businesses that are underserved, so they may be more willing to work with businesses that have a low credit score.
• Example: Grameen America offers SBA-backed microloans for women entrepreneurs and individuals with bad credit.

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Tips for Improving Your Chances of Getting Approved for a Loan with Bad Credit:

1. Improve Your Business Cash Flow: Lenders often focus more on the business’s cash flow and revenue than your personal credit score. Strong and stable cash flow can increase your chances of securing funding.
2. Provide Collateral: If you can offer collateral, it may reduce the lender’s risk and improve your chances of approval, especially with secured loans like equipment or invoice financing.
3. Have a Co-Signer or Guarantor: A co-signer with a better credit score or a business partner with a more stable financial history can help improve your application.
4. Provide a Solid Business Plan: Lenders may be more willing to lend to you if you can show a clear business plan that outlines how you’ll use the loan and how you’ll repay it.
5. Avoid High-Interest Loans: While some lenders may approve loans with bad credit, be careful about high-interest rates. Try to find a loan that offers reasonable rates to avoid overburdening your business with debt.

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