Starting or growing a small business often requires capital — but what if your credit score isn’t ideal? Many entrepreneurs face this challenge, yet bad credit doesn’t mean your business journey is over. In fact, there are several lenders and strategies that cater specifically to small business owners with low credit scores.
In this guide, we’ll walk you through how to apply for a small business loan with bad credit, which lenders to consider, what documents you’ll need, and how to improve your chances of getting approved.
What Is Considered Bad Credit for Business Loans?
Most lenders evaluate your personal credit score (FICO or VantageScore) and sometimes your business credit score if you have one. Here’s the general breakdown:
- Good credit: 700+
- Fair credit: 640–699
- Poor credit: Below 640
- Bad credit: 580 and under
Some business lenders approve borrowers with credit scores as low as 500, depending on revenue, time in business, and other factors.
Types of Business Loans Available for Bad Credit
1. Short-Term Business Loans
- Quick funding (often in 24–48 hours)
- Repayment in weeks or months
- Higher interest rates, but flexible approval
2. Business Lines of Credit
- Access to a revolving credit line
- Only pay interest on what you use
- Available for scores as low as 500
3. Invoice Financing
- Use unpaid customer invoices as collateral
- Lenders focus on your client’s credit, not yours
- Good for B2B businesses
4. Merchant Cash Advances (MCAs)
- Receive a lump sum repaid through a percentage of daily card sales
- Easy to qualify but very high fees
- Best for businesses with steady revenue
5. Equipment Financing
- Loan tied to specific equipment as collateral
- Easier to get approved even with poor credit
- Equipment acts as security
6. Microloans
- Smaller loans (under $50,000)
- Offered by nonprofits and community lenders
- Focus more on business potential than credit
Best Lenders That Work with Bad Credit
1. Fundbox
- Minimum credit score: 600
- Loan type: Line of credit
- Max amount: $150,000
- Best for: Fast funding and newer businesses
2. BlueVine
- Minimum credit score: 625
- Loan type: Line of credit
- Max amount: $250,000
- Best for: Businesses with strong monthly revenue
3. Credibly
- Minimum credit score: 500
- Loan type: Working capital, merchant cash advance
- Max amount: $400,000
- Best for: Businesses needing quick short-term cash
4. National Funding
- Minimum credit score: 500
- Loan type: Equipment financing, working capital
- Max amount: $500,000
- Best for: Personalized lending solutions
5. Kiva
- Minimum credit score: Not required
- Loan type: Microloan
- Max amount: $15,000
- Best for: Startups, especially in underserved communities
6. Accion Opportunity Fund
- Minimum credit score: 550
- Loan type: Microloan
- Max amount: $100,000
- Best for: Minority- and women-owned businesses
Step-by-Step: How to Apply for a Business Loan with Bad Credit
Step 1: Know Your Credit Score
Check your personal and business credit reports. Use sites like Credit Karma, Nav, or AnnualCreditReport.com to identify where you stand.
Step 2: Build a Strong Business Profile
Even if your personal credit is low, strengthen your business profile by:
- Registering your business officially (LLC, Corp)
- Opening a business bank account
- Keeping financial statements updated
- Creating a business plan
Step 3: Calculate How Much You Need
Be clear about the purpose of the loan — whether it’s for inventory, payroll, expansion, or equipment. Lenders appreciate specific funding requests.
Step 4: Gather Documentation
Most lenders will ask for:
- Government-issued ID
- Bank statements (3–12 months)
- Business tax returns (1–2 years if available)
- Business license or registration
- Profit & loss statements
Step 5: Choose the Right Lender
Don’t apply blindly. Compare lenders based on:
- Minimum credit requirements
- Loan terms
- APRs and fees
- Funding speed
- Repayment flexibility
Step 6: Apply Online or In-Person
Fill out the application form with complete and honest details. Many fintech lenders offer prequalification with a soft credit check first.
Step 7: Use the Funds Wisely
Once approved, use the funds strictly for your business needs. Making timely repayments can help improve your credit and future borrowing power.
Tips to Boost Your Chances of Approval
1. Apply for a Smaller Amount
Lenders are more likely to approve smaller loans if you have bad credit. Borrow only what you need.
2. Offer Collateral
Using assets such as equipment, vehicles, or inventory can reduce the lender’s risk.
3. Find a Co-Signer or Partner
If a trusted partner has stronger credit, their signature can make approval easier.
4. Use Alternative Data
Some lenders consider factors like transaction volume, business reviews, and online activity — not just your credit score.
5. Work with a Loan Broker
Loan brokers can help match you with lenders who accept lower credit scores and know which options are more likely to approve your application.
Avoid These Mistakes
1. Applying with Multiple Lenders at Once
Too many hard inquiries can hurt your credit score further. Use prequalification tools before committing.
2. Not Reading the Fine Print
Some loans may have hidden fees, prepayment penalties, or confusing terms. Always read the agreement in full.
3. Taking an Unaffordable Loan
Don’t accept a loan you know you can’t repay. It could damage your business and credit even more.
4. Falling for Loan Scams
Avoid any “lender” that asks for upfront fees or guarantees approval without reviewing your documents.
Can You Improve Your Credit While Running a Business?
Yes. Here’s how:
- Make all debt payments on time
- Keep credit utilization low
- Separate personal and business credit
- Open a business credit card and use it responsibly
- Register with credit bureaus like Dun & Bradstreet
Alternatives to Business Loans with Bad Credit
1. Crowdfunding
Raise funds through platforms like Kickstarter or Indiegogo. Great for product-based businesses with loyal audiences.
2. Grants
Look for government, nonprofit, or private grants targeting small businesses, especially those owned by minorities, women, or veterans.
3. Friends and Family
Create a formal repayment plan and avoid informal loans that can damage personal relationships.
4. Business Credit Cards
Secured or startup-focused credit cards can help with small expenses and improve your business credit over time.
Frequently Asked Questions
Can I get a loan with a 500 credit score?
Yes. Lenders like Credibly, National Funding, and some microloan programs accept credit scores as low as 500.
What is the easiest loan to get with bad credit?
Merchant cash advances and invoice financing are the easiest to get but often come with higher fees.
Do business loans affect my personal credit?
Yes, especially if you use your personal guarantee. Defaulting may impact your credit score.
How long does it take to get approved?
Some lenders approve and fund within 24 hours, while others may take 3–7 days depending on documentation.
Final Thoughts: Bad Credit Shouldn’t Stop Your Business Growth
Having bad credit doesn’t mean you can’t get funding. By choosing the right loan type, improving your business profile, and applying strategically, you can secure the money you need to start, grow, or stabilize your business. Stay informed, compare lenders, and take steps to rebuild your credit for even better opportunities in the future.
