How can you get a small business loan with bad credit?

Many people dream of being an entrepreneur at some point in their life.

Without money however, it’s an impossible feat to build a successful business.

Undeniably, obtaining capital to grow or start your business with low personal credit score is no easy task.

Once you have bad credit, it follows and haunts you for years to come, limiting your financing options.

Although it’d be ideal to avoid getting less than perfect credit from the beginning, sometimes life presents challenges and puts us in a rough financial patch.

There is good news though.

There are many other ways to get working capital besides traditional business loans that are primarily based on your personal credit.


FinTech - Online Lenders

While most lenders, especially banks, offer business funding through an unsecured loan only for established businesses with a few years of business they can verify with a credit check, there are many online lenders will offer small business a working capital loan.

Online lenders don’t have a brick and mortar location that their customers can visit.

All of them have different criteria when it comes to approving or declining an application, however there are two main differences:

Some online lenders rely primarily on business credit score and personal credit history.

Others tend to mostly use business’s cash flow in their decision making.

If you have bad credit, please keep in mind, when seeking any type of business funding from any financial institution or even peer-to-peer lenders, to ask for the smallest amount that’s absolutely necessary to cover your core operating costs.

There is no point adding more unnecessary debt through unsecured business loans or a merchant cash advance and you definitely don’t want to end up with a large debt you’re incapable of repaying.

Start only with the minimal amount you need and as you repay the loan the lender will report the activity to the credit bureaus, thus helping you rebuild your credit.

If you have accounts receivables consider invoice factoring, where a financial institution will run a credit check on your client and not you.

Short-Term Loans

Usually this type of financing is based mostly on business’ cash flow.

Lenders do consider a minimum credit score as well, however as long as the business can demonstrate the ability to repay, business owners even with less than perfect credit will usually be approved.

Typically short-term loans get approved or rejected quickly, and businesses can obtain financing in as little as a few days.

Qualify for a short-term business loan on Orumfy’s platform you can receive funds in less than 24 hours.

Online application process is quick and simple, and takes only a few minutes and you will be enrolled into our rewards program as an added sign-up bonus.

Repayment terms with this type of financing require payments in small increments every day or every week directly from the business’ bank account.

Merchant Cash Advance

This type of funding provides business owners with cash upfront in exchange for a portion of future credit card sales.

If you have consistent bank deposits each month, an online lender may give you a cash advance even if you have bad credit.

Be very selective with which merchant cash advance provider you choose to work, and make sure they have a solid reputation and positive reviews.

For some businesses, a merchant cash advance makes sense because they typically offer a payback schedule that is based on a flat percentage of the credit and debit card sales.

This percentage is automatically remitted daily, so you don’t have to deal with a huge payment at the end of the month.


SBA Loan Options

The Small Business Administration offers partially guaranteed loans..

What this means is the SBA guarantees to the lender or bank that they’ll get their money in the event of default.

Getting a Small Business Administration loan depends on how bad your credit is and the guidelines of the issuing bank.

The most common SBA guaranteed loans are the 7(a) loans, CDC/504 loans and microloans.

Banks are more lenient in approving loans if the government backs them up but you still might not be able to qualify for an SBA guaranteed loan, unless you can provide some sort of collateral, such as real estate or high value equipment.

7(a) loans are perfect for the small for-profit business who used personal assets or alternative funding methods up to the point of application.

They are guaranteed up to 75-85% while the CDC/504 program is for nonprofits and can go up to $5 million.

The Small Business Administration (SBA) created and funded the microloan program to help businesses with the typical startup and growth costs.



Crowdfunding has gained recent popularity as an alternative to traditional venture capital.

It is a method of raising capital by collectively tapping into a variety of resources including individual investors, friends, families and the general public.

There are pros and cons with crowdfunding and a variety of online platforms are at your disposal.

Kickstarter and Indiegogo are the more popular ones, targeting the general public with campaigns and offering rewards in exchange for financial contributions.

Other platforms like CircleUp and Crowdfunder offer equity-based crowdfunding.

This gives accredited investors equity in your company in exchange for cash.

Because crowdfunding platforms don’t look into your personal credit, this method is a great way to get financing for small businesses.


Personal Loans

Though many might feel uncomfortable asking for financial support from their friends and family, asking loved ones for a quick personal loan can be the easiest way to get out of your financial bind and keep your business up and running.

For the most part, your family and friends want you to succeed and are probably willing to help you more than you may be inclined to believe.

They typically won’t hold your bad credit over your head and probably won’t ask for collateral like most banks will.

If someone you know is generous enough to give you a temporary loan, use it to get you through the rough patch and get back on track to building business credit until you are in a position to apply for a business loan.

Although borrowing from a friend or family can present a high level of risk in terms of your relationship, four out of five businesses choose to go this route according to the Global Entrepreneurship Monitor’s Report.

If you don’t follow through, your relationship can get strained so make sure you consider all the benefits and consequences of this option and never forget the other financing options you have at your disposal.

Of course, for many entrepreneurs who are just starting out, borrowing money from friends or family or via other peer-to-peer lending is just not viable, usually because the amount they need is too high.


Bank Loans

Of course, a traditional bank loan for small businesses is always on the table but a less likely option for those suffering from bad credit.

Your interest rate will most likely be very high and you’ll probably have to put up some collateral but it’s not impossible to get bank loans with bad credit.

According to the Small Business Lending Index, over 89% of business applications are denied by big banks.

However, that means that 11% get approved.

Big banks typically have more stringent requirements for small businesses with bad credit but smaller banks and credit unions are often more flexible and understand local business markets.


Venture Capital

Venture capital is a common method of obtaining business financing for tech based startups but nearly any type of business can get an investor to give you cash in exchange for company equity.

These types of business financing structures are different from traditional small-business loans because investors will usually be an active player in the business and usually:

●  Focus on young companies with high-growth potential

●  Take higher risks to potentially gain higher returns

●  Actively monitor the business

Venture capital can range from large venture firms to solo angel investors.

Angel investors allow wealthy individuals to invest their money in new and more meaningful ways and allows them directly be a part of a team.

At some point they may decide to leave your business the moment they make their desired return.


What else do lenders look for when underwriting business loans for bad credit?

The process of evaluating the worthiness of a borrower’s loan application is called underwriting.

There are many factors that banks and online lenders consider when deciding whether or not to approve a loan application.

The point of this evaluation is to evaluate how much risk there is that the borrower will not be able to pay back the loan.

Much of this risk assessment is done automatically with algorithms.

Underwriting algorithms mainly look at the following criteria:

  1. The monthly revenue of the business. If the business is bringing in enough money to reasonably pay back the loan, this factor can help override poor credit.

  2. Your personal credit score. Although you should aim to keep business and personal finances separate, there are times when your personal credit score can be a viable tool in obtaining long-term financing or qualify for business credit cards.

With the economy and other factors at play, it’s not unreasonable for small businesses to be hit with some hard times, affecting its credit score.

Or perhaps, you’re just launching and your business is too young to have a decent credit score. If you personally have a good credit score, this can help convince lenders and financial institutions to give you an unsecured loan.

  1. The value of collateral. Having something like real estate or high value equipment that is worth as much or more than the loan you are seeking can help secure hard money loans with low rates.

  2. Personal equity. If you helped put money into your business when it was just starting up, lenders may take into consideration how much you personally have put at stake on behalf of the business.


Alternatives to Alternative Lenders

Business Grants

Grants, although technically they are not loans, is another way for you to get money to grow your for-profit business.

Every year the government gives away grants to certain businesses without the requirement of paying it back.

Because they are funded by tax dollars, they have strict requirements to meet.

You may need to be in a low-income area or be a healthcare business.

The SBA does not offer any grants but if you put in some time and research in finding a program with state or local groups, you can potentially find a program that your business might qualify for.


Having a business partner definitely has its challenges but it can also be a viable option if you have bad credit and can’t lock down a business loan with reasonable rates.

You might have to compromise and give up some business equity but if you find a partner with a solid financial standing, you can secure the funding you need to open or grow your business.

Business Credit Cards

Just how you build personal credit through credit cards, if you can secure a credit card in your company name, you can begin building your business lines credit.

The credit limit, interest rate and terms of payment will vary so it’s critical you do your research.

Each bank or credit union will have different eligibility requirements so this option may not work for everyone.

Home Equity Line of Credit

Also known as “betting the farm”, this is one of the riskier options of funding as it requires you to put up your house as collateral to secure a bank loan.


Build Business Credit

For many entrepreneurs, not getting financing as soon as possible could result in complete failure.

If the damage has been done and you have bad personal or business credit, the important action to take is to recover your credit history and increase your credit score.

How does business credit affect lending decisions?

Credit scores serve as a way for companies to see how good you are at paying back loans.

Low credit scores can indicate a risk - if you haven’t paid back previous small-business loans on time, why would you start now?

There is more to a loan than simply how much money banks or other financing groups are willing to give you.

Lenders look at the business credit score, as well as many other factors, to determine not only how much money they are willing to lend, but also on what conditions.

Businesses with good credit are often offered loans with lower interest rates and generally better payment terms than businesses with bad credit.

Businesses with very low credit scores can have a hard time finding someone that is willing to loan it funds.

This can force its owners to get very creative when searching for cash infusions.

Not only can a low business score affect the ability of the business to get good short-term business loans, but it can also affect the owners of the business.

If your business hits a rough patch and its credit declines, the derogatory marks can end up on your personal credit report.

By understanding all of your financing options, even with a minimum credit score, you  can gain access to a loan program.

Understand How Credit Works

In order to build business credit, you first have to understand how credit works.

There are many factors that go into determining your score like late payments or large amounts of debt.

If you are granted loans and can’t make on time payments, you’ll plummet your business into debt and make matters worse.

When you don’t have established business credit, credit bureaus use your personal credit score to determine whether you’ll be granted a loan and on what terms.

Getting approved for a business loan with a personal 600 credit score or less is extremely difficult but there are positive things you can do to build up credit so don’t lose sight of your entrepreneurial dreams just yet.

A poor credit score limits your options of funding.

As a small business owner, maintaining a strong personal credit score is one of the most important things you can do to set your business up for success.

Taking steps to improve your credit profile should be top priority.

Over 63% of business owners seeking out first time loans target banks for their financial needs but only 27% of the applicants actually get approved a loan.

A lot of the time they were turned down is due to bad personal credit.

Before applying for any loans, whether it’s with banks or alternative lenders, examine your business and personal credit report so you can understand where you currently stand.

If you are not in a hurry, try to improve your credit score before you apply for any loans.

Credit scores are determined by a variety of factors and range in scale.

A personal credit score ranges from 300-850 with anything under 600 being “poor”.

A business credit score ranges from 1-100 with 75 or higher being considered excellent.

If you are just starting a business, you obviously won’t have any established business credit.

In situations like this, lenders look at your personal credit to determine whether to offer you a small working capital loan.

Your Credit Report

The first step is to review your credit report and fix any errors.

According to the Federal Trade Commission, as many as 25% of consumers have credit report errors.

If you’re launching a business, you’ll want to ensure you fix any errors on your credit report to lessen the chances of you being denied credit for no reason.

Knowing your personal credit score can help save you time in the long run.

When it comes to personal credit, you’ll face difficulties in getting small loans for bad credit.

But it’s definitely not impossible and in fact, according to Gerri Detweiler, Head of Market Education at, “there are options that don’t require good credit”.

There are many microlenders and alternative lenders that look beyond bad credit, making it possible for entrepreneurs to get easy business loans for bad credit.

For example, if your personal credit score is below 680, you’ll most likely not get a loan from a bank.

But other lenders are interested in more than just your score.

They’ll consider your annual revenue, profitability, current debt and cash flow among many other things.

This makes it possible for those with a score of even in the 500’s to obtain quick business loans so long as you are able to demonstrate you have a profitable business.

So make sure to do your research and only spend time with lenders that are likely to give you a loan.

Best of all, use our platform and we’ll do all the research for you.

Our Services and Platform is 100% Free of Cost to Our Customers.
We will never charge you a penny.

You may be able to get funding based on your future potential earnings so make sure you evaluate how long you’ve been in business, what your annual revenues are and what your cash flow looks like.

Of all businesses that start, only about 50% of them will be around in 5 years from the beginning.

Most traditional lenders such as banks like to see years of track record.

If you’ve been in business for a year or less, look at alternative lenders that will offer the best loans for bad credit with better term loans than banks.

Keep in mind that even if you have been in business for many years and have an excellent score, you can still face challenges in getting approved for a business loan if you can’t demonstrate your ability to make loan payments.

On top of annual revenues, you’ll want to make sure you have a healthy cash flow.

Direct lenders has different requirements but some items that are considered are:

●   FICO 500+

●   Trend lines in credit

●   Minimum monthly bank deposits of $5,000

●   For profit business models

Research Credit Score Requirements

After you understand what your credit score is, look for lenders that are willing to work with people that have your score.

Most are apprehensive with working with business owners who have less than 600 credit score but don’t get discouraged as there are many who will work with individuals with bad credit.

Don’t waste time applying with lenders you know you won’t meet requirements for.

Once you have identified which online lenders you can apply to, make sure you do all the applications at once and closely compare interest rates.

Visit your local SBA or SCORE office or other local groups and communities that have resources you can connect with.

Why would a lender fund you if you have bad credit?

Loan lenders take personal and business credit scores into consideration when deciding whether or not to grant a loan.

Even if a business or person has a bad credit score, online lenders may still want to give that person or business a loan.

If the business has a lot of cash flowing in, they may be able to overlook a bad credit score.

Lenders are also able to convince businesses with bad credit scores to accept unfavorable conditions. Since the business doesn’t have a lot of options, they may accept a loan with high interest rates and bad repayment terms.

High interest rates mean that even if the business cannot make payments in full, the lender will end up making more money by charging the borrower penalties.

Online lenders may want to lend a business money even if it is sure it will not get paid back.

Some loans are granted to businesses with poor credit when very good collateral is offered.

Collateral is what the borrower puts on the line if the business is not able to pay back the loan.

If the collateral is very good, the lender may be okay with the business failing to pay back the loan, because now the lender gets to keep the collateral.

How can business owners increase their chances of getting funding?

Build a Clear and Compelling Business Plan

There are many factors that lenders look when determining whether to grant you a business loan with bad personal credit.

Having a business plan shows you are serious and methodical.

If lenders can’t trust your credit score, they’ll want to know you have a viable business model with a scalable product or service, a plan for growth and the means to repay the loan over time.

Write out a business plan that explains your product or service, the need for it in the market and your plans of making money.

If you have monthly sales, share those numbers.

Hopefully you will be able to illustrate the gradual improvement of your business’s finances.

You’ll also want to project the future income and expenses for 3-5 years.

If a lender can see an upwards growth trajectory, you may be granted funding.



There are probably many reasons as to why you have bad personal credit and most are justifiable.

Whether you are still bouncing back from the recession or suffered a hit for another reason, there are ways for you to get the funding you need to launch or expand your business.

The choices however, are not ideal.

The worse your credit is the riskier you will be perceived and the higher your interest rates will be.

But keep in mind, a credit score is not the only factor looked at when granted long-term financing.

According to Ronald Benitez, a private institutional investor who specializes in helping startups get capital says “the key for any startup to receive funding really lies in their vision and value proposition”.

Make sure to incorporate your business and plan for the future.

Whether you decide to get bad credit business loans or not, make sure you focus on building your credit for the future of your company.

It’s harder for smaller businesses, even with great credit to get traditional bank loans.

However many alternative lenders provide solutions for those with bad personal credit, making their decision based on your business’ cash flow.

If you are interested in learning about your options on how to get small bad credit business loans, simply create a free account here, and we’ll show them to you.

Orumfy is here to help.


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