Short answer: yes, you can get business financing with bad credit, but your options narrow and the cost rises as your score falls. Lenders that work with low scores put more weight on your revenue, your bank statements and how long you have been in business. The products most open to low scores are merchant cash advances, invoice factoring, equipment financing and some online loans and lines of credit.
Can you get a business loan with bad credit?
Credit is the most common reason small businesses get turned down. In the Federal Reserve's latest Small Business Credit Survey, a low credit score topped the list of reasons applicants were denied (see our SBA loan denial statistics for the full breakdown).
That does not mean every door is closed. Banks and SBA lenders lean heavily on credit because they lend large amounts over long terms. Many alternative lenders lend smaller amounts over shorter terms and decide mostly from your recent business performance. Some online lenders and cash advance providers accept personal scores as low as about 500 (Biz2Credit), though the price at that level is high.
What lenders look at besides your credit score
If your score is low, these are the things that can still get you approved:
- Monthly revenue. Steady deposits are the single biggest factor for most alternative products.
- Time in business. Many lenders want at least six months to a year of history. More is better.
- Bank statement health. Frequent overdrafts, returned payments and negative balances hurt more than a low score in some cases.
- Existing debt. Lenders look at your current loans and especially any open cash advances. Several advances at once is a red flag.
- Industry. Some industries are considered higher risk and have fewer options.
- Collateral. Equipment, invoices or real estate can offset a weak score.
A business with steady revenue and a low score can qualify for things a business with a great score and little revenue cannot.
Your options by credit range
Every lender sets its own minimums, so treat these as a rough guide rather than hard rules.
Higher scores (mid-600s and up)
This is where bank loans and SBA loans become realistic. The SBA does not publish a single minimum credit score, but most SBA lenders look for a personal score in the mid-600s or higher (NerdWallet). If you were denied in this range, credit probably was not the main reason: see 7 reasons your SBA loan was denied.
Middle scores (roughly 550 to the mid-600s)
Banks and SBA lenders will usually say no, but many alternative products are open:
- Equipment financing. The equipment secures the loan, so lenders can be more flexible on credit.
- Online lines of credit and term loans. Online lenders often accept lower scores than banks if your revenue is steady.
- Invoice factoring. Approval depends mostly on your customers' payment history, not yours.
- Revenue-based financing. Repaid as a share of revenue. See who offers revenue-based financing.
Low scores (below about 550)
Options are limited and expensive:
- Merchant cash advances. Based mainly on your sales. Fast, but the cost can be very high.
- Invoice factoring, if you invoice other businesses.
- Secured options, if you have equipment or other assets to pledge.
At this level, the best long-term move is often to borrow only what you must now and work on your credit so you can refinance into something cheaper.
"No credit check" business loans: what they really are
Offers that say "no credit check" usually mean one of these:
- The lender uses a soft check that does not affect your score, at least until you accept an offer.
- The lender does not set a minimum score and decides mostly from your bank statements, as many cash advance providers do.
- The product is based on your customers' credit, as with invoice factoring.
Genuine financing with no checks of any kind is rare. Be careful with anyone who guarantees approval before reviewing your business or asks for a fee before you get the money. The Federal Trade Commission warns that legitimate lenders do not guarantee a loan before checking your application and do not require upfront payments. Read more in are there business loans with no credit check.
What bad credit financing costs
Lower scores mean higher prices, because the lender is taking more risk. Two things drive the cost:
- The rate or factor rate. A cash advance with a factor rate of 1.3 means you repay $1.30 for every $1 you receive.
- The term. The same fee spread over fewer months means a much higher APR. A $50,000 advance at a 1.3 factor repaid over 9 months of daily payments is roughly 73% APR. Over 12 months it is roughly 55%.
Before you sign, run the offer through our business loan calculator and check the payment as a share of your monthly revenue. If the payment only works in your best months, it is too big.
How to apply for a business loan with bad credit
- Check your credit reports first. You can get free reports from all three bureaus at AnnualCreditReport.com, the official site. Know what a lender will see.
- Gather three to six months of business bank statements. For low-credit financing these matter more than anything else.
- Be ready to explain the problem. A short, honest explanation of a past hardship (a medical issue, a lost client) helps more than silence.
- Offer collateral or a co-borrower if you can. Either can open better options. Without collateral, see unsecured business loans for what to expect.
- Apply once, to the right lenders. Multiple applications can mean multiple hard credit checks. A single request through our loan matcher reaches lenders that work with your profile.
How to raise your odds in the next 90 days
If you can wait a little, a few steps can make a real difference:
- Pay down credit card balances. Amounts owed make up about 30% of a FICO Score, and using a smaller share of your limits helps (myFICO).
- Dispute errors. In an FTC study, about one in five consumers had an error on at least one of their three credit reports (FTC). Paid collections still showing as open, or accounts that are not yours, are worth disputing.
- Hold off on new credit. New credit makes up about 10% of a FICO Score, and each new application can mean a hard inquiry.
- Keep your business account clean. A few months without overdrafts or returned payments improves how lenders see you.
Some owners use a short-term product now and refinance into a cheaper loan once their credit and revenue improve. That can work, but only if the short-term payments fit your cash flow and you avoid taking a second advance on top of the first.
Frequently Asked Questions
What credit score do I need for a business loan?
It depends on the lender. Banks and SBA lenders usually look for a personal score in the mid-600s or higher. Many online lenders accept lower scores if your revenue is steady, and some cash advance providers work with scores around 500. Revenue, time in business and your bank statements matter as much as the score for most alternative products.
Can I get a business loan with no credit?
Sometimes. If you have little or no credit history, lenders will lean on your business revenue and bank statements, or on collateral. Invoice factoring, merchant cash advances and equipment financing are the most common options. Expect higher costs until you build a history.
Does applying for a business loan affect my credit score?
A hard credit check can lower your personal score slightly for a while. Many lenders start with a soft check that has no effect and only do a hard check when you move forward with an offer. Our instant quote does not pull your credit at all.
Does my personal credit score affect a business loan?
Usually, yes, especially for small and newer businesses. Most lenders check the personal credit of owners with a significant share of the business, and many require a personal guarantee. As your business builds its own credit history and revenue, personal credit becomes less important.
Can I get an SBA loan with bad credit?
It is difficult. The SBA does not set one minimum score, but most SBA lenders look for a personal score in the mid-600s or higher, plus solid cash flow and often collateral. If your score is well below that, an alternative product now and an SBA loan later is usually more realistic.
Are no-credit-check business loans legit?
Some are. Many legitimate products, such as merchant cash advances and invoice factoring, rely more on your sales or your customers than on your credit score. Walk away from anyone who guarantees approval before reviewing your business or asks for a fee before you receive any money.
Sources
- Federal Reserve Banks, Small Business Credit Survey, summarized in our SBA loan denial statistics
- Biz2Credit: business loans with bad credit
- NerdWallet: SBA loan requirements
- myFICO: what's in your FICO Score
- FTC: study of credit report accuracy (2013)