Bad credit is a common reason for not being able to get affordable business financing. If you have bad credit, defined as a credit score between 300 and 649, there are actually more options available to you thanks to a fast-growing group of alternative lenders in the financing industry. The best bad credit business loans available to business owners with personal credit below 649 are:
This guide breaks down the details on the types of bad credit small business loans available and what you need to know about the lenders offering them.
|LENDER||TYPE OF LOAN||CREDIT SCORE REQUIRED||OTHER REQUIREMENTS|
Short-Term Line of Credit
$50,000 in annual revenue; 1 year in business
$25,000 in annual revenue; 3 months in business
$100,000 in annual revenue; 1 year in business
Have a PayPal business or premium account; minimum of $15,000 in annual PayPal sales
Capital One Secured Credit Card
Business Credit Card
Cash deposit of $49, $99, or $299 (depending on your credit score) for a $200 credit limit
With such a vibrant industry full of alternative lenders, there are more bad credit business loans to choose from than ever. If you’re working with bad credit below 649, then you’ll still be able to find a business loan.
Be careful, though. Bad credit business loans are often extremely hard to pay back. They can have high interest rates, frequent payments, and short repayment terms, so bad credit business loans can definitely wreak havoc on a business’s cash flow. When looking for these small business loans, it’s crucial to find the most affordable option possible. Even within the following six best bad credit business loans, you can still come across some pretty expensive funding.
Nonetheless, many bad credit business loans offer creative solutions to the risk that a bad credit score poses to business lenders. So, take a look at these top six loan types and lenders offering them.
Business lines of credit offer quick access to flexible working capital through a revolving credit limit. And business lines of credit with repayment terms of less than eighteen months, often referred to as short-term business lines of credit, are more accessible to business owners with bad credit.
A bad credit business line of credit will have higher APRs and will offer lower credit limits than longer-term business lines of credit. That said, they still offer stellar bad credit business financing, especially relative to more expensive, shorter-term bad credit business loans.
If you think a business line of credit could be right for your business, check out Kabbage. This business line of credit provider only requires you to have a personal credit score of at least 550 to be eligible for their product. Plus, applying for this bad credit business loan option will be as simple as syncing your accounting software to your Kabbage account.
Another major bonus of choosing to fund with Kabbage? This short-term business line of credit comes with monthly payments instead of daily or weekly payments that bad credit business loan remittance schedules typically come with.
Kabbage is best for:
Business owners who need flexible financing, have at least one year in business, and $50,000 in annual revenue. Kabbage does not have a personal credit requirement for their short-term line of credit product.
Learn more in our complete Kabbage review, or see if you qualify with Kabbage here.
One of the best ways you can offset a bad credit score is by having some form of collateral to offer lenders. But when we say collateral, we don’t mean your house or the family car.
Through invoice financing, lenders allow you to access advances for outstanding invoices that are secured by the invoices themselves. This self-secured nature of invoice financing makes it easier for you to get a business loan with bad personal credit without having to offer up valuable property.
With invoice financing, lenders can offer you a cash advance equal to around 85% of the outstanding invoice amount. Then, when your customer pays back your invoice, you’ll receive the remaining 15%, minus any fees incurred. Usually, these companies charge a flat fee—often around 3%—to process the transaction, and then charge a fee each week the invoice remains outstanding, often around 1%.
Since invoice financing is backed by invoices, invoice financing providers are typically able to finance loans for business owners with bad credit. There are also some invoice financing providers who don’t even look at credit, so it’s one of the few products on the market that’s truly a small business loan with no credit check.
One invoice financing company on our marketplace—Fundbox—works with borrowers with credit scores starting at 500. Fundbox offers a line of credit product that’s backed by outstanding invoices. They offer line of credit limits up to $100,o00 at rates starting at 4.66% of your draw amount.
Fundbox is best for:
Business owners who need capital and have outstanding invoices they can finance. Fundbox requires a 500 credit score, $25,000 in annual revenue, and three months in business (making it an especially good bad credit business loan for startups).
Read more in our complete Fundbox review, or see if you qualify for Fundbox here.
With equipment financing, you can use the equipment you’re looking to buy to collateralize the loan. And again, since there’s collateral backing the loan, your lender will care less about a bad credit score.
Equipment loans basically operate like car loans, meaning you’re advanced the sum you need to purchase the equipment, then pay back the loan, plus fees, over a set period of time.
You fully own the equipment once it’s paid off, which can make this a better solution than renting or leasing equipment.
Even though the equipment collateral will make this financing less risky for equipment financing companies, it is still pretty hard to qualify for with bad credit. This is mostly because of the long repayment terms that equipment financing tends to come with. Nonetheless, this option still qualifies as a top bad credit business loan because business owners with personal credit as low as 600 can still qualify.
Balboa Capital is an equipment and working capital financing provider offering equipment financing of up to $500,000. Their loans last for a two- to five-year term, and will relatively low interest rates as far as lower-credit financing goes, at 3.99% to 25%.
Balboa Capital is best for:
Business owners with one year in business, at least a 600 credit score, and $100,000 in annual revenue.
Read our complete Balboa Capital review, or see if you qualify for equipment financing here.
A working capital loan is structured similar to a short-term loan, where you borrow a lump sum amount of money to finance your company’s everyday operations. These loans aren’t used for bigger investments in your business.
If you need capital to smooth out your cash flow, finance payroll, or any regular operations of your business, a working capital loan could be a good fit.
Working capital loans can be options for borrowers with bad credit.
PayPal’s working capital product, for instance, doesn’t even take personal credit into account. You will need to be PayPal account holder though. But after that, the loan you secure from PayPal is based on the volume of sales you do on PayPal.
PayPal working capital loans are repaid, plus a fee, with 10% to 30% of your business’s daily PayPal sales. Borrowers can qualify for up to 30% of their annual PayPal sales with a maximum of $97,000 for the first loan.
PayPal is best for:
Borrowers with a business or premium PayPal account opened for at least three months and who do a minimum of $15,000 in annual PayPal sales.
Learn more in our PayPal Working Capital review, or see if you qualify for PayPal here.
BlueVine offers both an invoice factoring product and a line of credit product (called their FlexCredit) for borrowers with lower credit scores.
The invoice factoring product requires a credit score of 530, and the FlexCredit line of credit requires a score of at least 600.
If you have outstanding invoices that are tying up your cash flow, the BlueVine invoice factoring product could be a great funding product for you.
If you have limited or poor credit, then looking toward business credit cards can be a smart move.
A business credit card, either on its own or coupled with a business loan, can give you easier access to a small amount of spending power (in the form of a credit line) that you can use to cover your business’s expenses.
Perhaps most importantly, a business credit card will also help you build your credit so you can graduate to better business credit cards and business loan options down the line.
Use a credit card responsibly (never taking on too much debt, and paying in full and on time every month), and the credit reporting bureaus will notice your good behavior.
When it comes down to it, every business owner should have a business credit card in their wallet. Here is your best option:
The Capital One Secured Mastercard is a great option for borrowers with poor credit or no credit at all.
This is a secured card so your ability to get the card depends on your ability to put a cash deposit down for it.
Secured cards are great options for business owners with struggling credit: With the security of a cash deposit, issuers are more willing to work with you despite where your personal credit score stands. In the case that you can’t pay your secured business credit card debt, they can simply seize the deposit to recoup their losses.
The Capital One Secured Card is an especially great option for those borrowers that don’t want to put down a ton of cash in the form of collateral: A deposit of $49, $99, or $200 (depending on your credit history) gets you a credit limit of $200.
What other parts of your business will matter to a lender?
The better you understand the application process attached to business loans for bad credit, the better your chances are of qualifying for the financing you need.
And remember: Even if you’re looking for business loans with bad credit, other strong factors could help open up your funding options.
One of the most important parts of your loan application is your business’s annual revenue.
The more revenue you’re bringing in, the better.
That should come as no surprise. A high revenue proves to lenders that you know what you’re doing—and that your business is a worthwhile investment for them to make.
Especially when dealing with small business loans for bad credit, lenders want to make sure that you’ll be able to repay their loans, and a good annual revenue can help put that fear to rest.
Plus, your annual revenue can also help set expectations for your loan size. Generally speaking, the loan you’ll qualify for will be around 8% to 12% of your annual revenue.
Along with revenue, lenders will also want to know whether or not your business is profitable.
While your business doesn’t have to be profitable in order to qualify with plenty of online lenders, it will help your chances if you are, especially if you’re looking for business loans for bad credit.
While underwriting for bad credit business loans, lenders want to know who else you’ve been working with.
If you’re currently paying back a small business loan, you might have trouble qualifying for a second product.
Most lenders don’t want to take what’s called “second position” to another lender, because if you already have a business loan, it’s very likely that your original lender put a UCC lien on your business.
For some lenders, taking second position isn’t an issue. Maybe they’re just confident enough in your financials or history, or they’re giving you capital to refinance the debt you already have.
For other lenders, if you’ve almost entirely repaid your debt, then it won’t be a problem. It depends on their risk tolerance: How much are they willing to bet on your business?
Lenders want to know how well you manage your cash flow and how much cash you tend to keep on hand.
Every lender’s main concern is whether you’ll be able to make their loan payments, so demonstrating that your business makes and keeps enough money to afford those regular expenses will go a long way to helping you qualify for financing, especially with business loans for bad credit.
To understand your cash flow, nearly every lender will want to see at least three months of your business bank statements.
And depending on the kind of financing you’re looking for, they might ask for more.
If a lender does a “hard pull” and wants to look at a physical credit report, it’s because they want to know what has happened in your financial past.
What else do lenders care about on your credit report, other than the one number that is your credit score? Here are a few examples:
Have you had a bankruptcy? If so, you’re not necessarily disqualified, but most lenders will want you to be a few years out from bankruptcy before deeming you eligible for another business loan.
Have you had a foreclosure? Do you have a tax lien on your business? Are there any other red flags on the report?
If you have a potential red flag on your report, don’t fret. These aren’t the end of the world—especially for lenders offering small business loans for bad credit borrowers.