What is a bad credit business loan and how does it work?

Getting approved for a business loan can be difficult when you have bad credit. Lenders typically want to see a good to excellent credit score and a solid track record of responsibly managing debt.

Even with a less-than-ideal credit score, it’s still possible to get a loan for your business. The bottom line is that it will likely be more expensive and you may have to provide an asset acting as collateral.

Here’s everything you need to know about bad credit business loans, including how to find the best, most affordable loan for your business.

A bad credit business loan is any loan product designed for business owners with poor credit. They have lower credit score requirements and more relaxed eligibility requirements. Because the lender takes on more risk in lending money, bad credit business loans come with higher interest rates and fees, and may require more assurance that you won’t default on the loan.

There are different types of business loans available for applicants with bad credit. They include:

  • Term loans
  • Microloans
  • Secured loans
  • Invoice factoring
  • Invoice financing
  • Equipment financing
  • Merchant cash advances
  • Working capital loans

What is a bad credit score?

A bad credit score depends on the scoring model used by the lender. For personal credit, a bad credit score is often classified as a FICO score of 300 to 579.

Lenders can also look at your business credit score, if you have one. There are several different business loan providers. These include FICO Small Business Scoring Service (FICO SBSS), Equifax Business, Experian Business, and Dun & Bradstreet.

Each agency has its own business scoring models and may include multiple scores and ratings to assess creditworthiness. Some, such as Experian and Dun & Bradstreet, provide scores ranging from 1 to 100, and 1 to 49 suggest high risk for lenders.

Like any small business loan, a bad credit business loan provides financing that must be repaid over time and with interest. Some loans offer a one-time payment or a line of credit.

Some banks and credit unions offer bad credit business loans, but these are more widely available than online lenders.

You can also get bad credit loans from community development financial institutions (CDFIs). CDFIs are specifically designed to provide loans and other financial services to underserved markets and populations to stimulate growth in these communities.

The financing term for bad credit business loans varies. Depending on the lender and their underwriting requirements, you can get bad credit loans quickly, in some cases within 24-72 hours of getting approved.

The APR for bad credit business loans can be 35 percent or more. But not all small business loans charge interest. Some charge a fee instead.

To get the best rates for a bad credit business loan, you need to provide business collateral.

Business collateral is an asset that your business can use to secure a business loan. This could be property, equipment, inventory or even unpaid invoices. If you default on a loan, the lender can take that asset as payment.

For an asset to be used as collateral, it must be directly owned by your business and not used as collateral for any other debt or debt you may be liable for.

The amount and type of collateral you must provide will vary based on many factors, including your credit score and the amount of loan you are seeking and your ability to repay the debt. However, when applying for a loan with bad credit, it is not uncommon for lenders to require assets equal to the amount of the loan you are seeking.

The main advantage of collateral is that it can help you secure a business loan and possibly a loan with better interest rates and terms. As Michael Stone, Senior Vice President of Commercial Lending at Georgia Own Credit Union, notes, a lien “can increase the likelihood of approval and support longer repayment terms and lower interest rates.”

Carefully consider the pros and cons before proceeding with a bad credit business loan.


  • Flexible eligibility criteria. Bad credit business loans often have more lenient eligibility requirements.
  • Fast funding. Depending on the lender, you can receive financing within 24-72 hours of approval.
  • It helps build credit. For new businesses with little or no credit history, bad credit can be a way to build or improve your credit profile as long as your lender reports your payments to one or more credit bureaus.


  • Higher interest rates. With a subpar credit score, you’ll generally have to pay higher interest rates than other borrowers to compensate for the risk lenders are taking.
  • Risking your collateral. Putting valuable assets on the line as collateral to obtain a loan can be a risky proposition. If you can’t keep up with your loan payments, you could lose these assets.
  • Low credit limits. Lenders may not be willing to lend you as much money as your business requires when you have bad credit.

When you are ready to get a bad credit business loan, follow the steps below.

Check your credit scores

Lenders can look at both business and personal credit reports. So weigh both and see what the lenders will look at. If there are any errors, you should report them to any bureau that reported the incorrect information.

Improve your credit scores

If you have the time, improving your credit can go a long way in helping you save money. Some of the most common steps to take to build credit are making timely loan and credit card payments, correcting negative information on your credit reports, and maintaining a low credit utilization ratio.

Find a co-signer

Applying for a loan with a partner with good or excellent credit can significantly increase your chances of not only being approved, but also getting a better interest rate and loan terms. But before you take that step, make sure your co-signer understands the risks associated with this type of agreement.

Organize and prepare documents

As part of the application review process, the lender will conduct a thorough review of your business and personal financial situation. Prepare for this step by getting all your financial documents in order.

A lender will want to see your business plan and will also look at things like your business and personal bank accounts. If your business plan is not up-to-date or as complete as it should be, spend some time polishing this document.

Shop around and compare lenders

Take the time to do your due diligence to secure the best loan offer possible. Shop around and seek pre-qualification from multiple lenders. Carefully compare offers, including interest rates, loan origination fees and prepayment penalties.

Apply for a loan

Once you’ve identified the lender you think is a good fit, it’s time to submit your application. Often this can be done online, although you may be required to attend a follow-up phone call with the lender to answer additional questions or provide additional information.

Bottom line

Even with bad credit, it’s still possible to get a loan for your business, although the process can be a little more difficult. You should shop around and explore different options to determine what makes the most sense for you and your business.

  • Yes, it is possible to get a business loan for bad credit. Online lenders and even local community development organizations can provide small business owners with bad credit. But you’ll likely pay more for the loan than applicants with good credit, and you may also have to provide collateral.

  • Although requirements vary from lender to lender, you generally need a score of at least 500 to get a bad credit business loan.

  • Yes, even applicants with bad credit can qualify for a Small Business Administration (SBA) loan. SBA loan approval is generally based on factors such as how you earn money, an assessment of the nature of your property, and where your business operates.

  • If you have bad credit and need fast financing, there are several options to consider. Some alternative small business lenders offer business lines of credit and equipment financing to business owners with bad credit. These will likely be secured business loans that require you to put up an asset as collateral that can be taken in the event of default on the loan. Your business may also be eligible for invoice factoring, which focuses more on the creditworthiness of your invoiced customers than your business. Depending on the lender and how quickly you can provide the required information, it is possible to get financing for any of these loans within 24 hours.

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