Where To Get A Bad Credit Business Loan

Catherine Falls Commercial/GettyImages; Illustration by Hunter Newton/Bankrate

Key takeaways

Business owners with bad credit can explore online lenders, the U.S. Small Business Administration and Community Development Financial Institutions.
Business loans are still available for owners with bad credit, although they may face higher interest rates and fees.
Carefully consider all options and weigh the benefits and drawbacks of each type of loan before applying to avoid further damaging your personal credit.

The Federal Reserve reports that lenders are continuing to tighten credit standards, making it difficult for small business owners to get loan approval. According to the 2024 Small Business Credit Survey, 24 percent of applicants were denied any funding, with 29 percent citing poor credit as the reason for their denial.

While it can be tricky to get approved for a small-business loan with bad or fair credit — typically a FICO score of 669 or below — online lenders, SBA lenders, community development institutions (CDFIs) and minority depository institutions (MDIs) are all types of lenders that may offer options for bad credit.

Online lenders

Online lenders — which are financial technology companies that operate entirely online — can be a good choice for bad credit business loans. These lenders generally have more lenient qualification requirements than traditional lenders, including more relaxed credit score requirements. Some may even accept a credit score as low as 500.

Many online lenders can also pre-qualify you without pulling your credit, allowing you to shop around without further damaging your credit with multiple inquiries.

Pros

Streamlined lending process: You can generally apply online in minutes and get a quick funding decision. Some lenders also disburse funds as soon as the same or the next business day following approval.
Lenient eligibility guidelines: Several online lenders offer business financing options with lower credit scores and time-in-business requirements.

Cons

Higher interest rates and fees: Online fees and interest rates for bad credit business loans are often higher than you’d get with a bank or credit union.
Short repayment periods: Many online lenders only offer short-term loans, requiring biweekly, weekly or even daily payments.

Why do online lenders sometimes have less strict requirements?

Online lenders tend to have less overhead costs than traditional banks because they don’t have costs of physical locations. Online lenders also tend to not offer as many services as banks, such as apps and credit counseling that can add to a bank’s operational costs.

SBA-approved lenders

If you want an SBA loan, you’ll need to work with SBA-approved lenders. It is possible to get approved for SBA loans with bad credit; however, the exact requirements will ultimately be up to the SBA lender you work with.

Specifically, SBA microloans have more relaxed eligibility requirements than other SBA-backed loans. They come in smaller loan amounts of up to $50,000, but they may be a good option to help businesses facing financial difficulty or people starting a business with no money and bad credit.

Community Advantage Small Business Lenders (CA SBLCs) are also an option. CA SBLCs offer 7(a) loans up to $350,000 in underserved markets. Some businesses that are eligible include businesses less than two years old, veteran-owned businesses and those located in low-to-moderate income communities.

Pros

Attractive terms: Interest rates generally range from 5.82% to 16.00% and come with repayment terms of up to 25 years.
Educational resources: Borrowers get access to resources to help start and expand their companies.

Cons

Complex application process: It can be challenging to navigate the application process, which requires more documentation than traditional loans.
Slow funding times: It could take some time to hear back from the SBA and up to 90 days several weeks or months before you’re approved for and receive funding.

Community development financial institutions

Community development financial institutions (CDFIs) give resources to underserved communities who struggle to access funding from traditional lenders. CDFIs are made up of banks, credit unions, depository holding companies, loan funds and venture capital funds. Small businesses in underserved communities may have luck securing funding through CDFIs.

Pros

Competitive rates: You may be eligible for a small business loan at a competitive rate, even with poor credit.
Educational services: CDFIs often offer a variety of financial education services to their borrowers.

Cons

Longer wait for funding: It can take weeks to get your funds compared to hours or days when you work with an online lender.
Limited accessibility: Funding opportunities are limited to small business owners in low-income and minority communities.

Minority depository institutions

Minority Depository Institutions (MDIs) are banks and credit unions majority-owned by minorities. Anyone can bank with these institutions, but each specializes in working with underserved and disadvantaged communities. That includes low- and moderate-income communities, people of color, women and veterans.

Pros

Targeted products and services: Many MDIs are organized to serve specific underserved groups, including minorities (such as Black or Hispanic business owners). If you can find an MDI that gears its offerings toward you, it may make it easier to get the help and financing you need.
Educational services: Like CDFIs, some MDIs also help their customers learn how to manage their money.

Cons

Not as accessible to everyone: These institutions focus on low-income areas and are usually concentrated in metropolitan areas, so rural business areas may have trouble accessing them.
Lack of resources: MDIs don’t have the financing of larger traditional banks. MDIs may not be able to offer as many loans to borrowers or may lack the ability to offer online loans.

Microlenders

Microloans are small business loans, typically between $500 and $50,000. According to the SBA, the average microloan amount is about $13,000. Nonprofit organizations and online lenders are often the best places to find microloans. You can also expect more lenient lending guidelines as microloans are designed to assist underserved business owners who can’t qualify for funding elsewhere.

Pros

Can be used for many purposes: You can use a microloan for just about any business purposes, except repaying existing debts or buying real estate.
Flexible loan terms: Most microloans come with repayment periods between six months and seven years.

Cons

Slow approval times: It could take up to three months to hear back regarding a lending decision.
Lenders may charge additional fees: You may have to pay a packaging fee of 2% for loans of one year or less or up to 3% for longer loans.

Accion Opportunity Fund is an example of a nonprofit lender that focuses on smaller loan amounts with flexible terms and requirements. Loans range from $5,000 to $250,000, and interest rates start at 8.49 percent. You must have at least $50,000 in annual revenue and be in business for at least 12 months to qualify.

What to do if you’re denied a bad credit loan

If you’re denied a bad credit business loan, you still have many paths forward, some that include business funding.

Look into other ways to finance your business

Beyond business loans, there are many other ways you can get funding for your business:

Business credit cards. Similar to business lines of credit and consumer credit cards, business credit cards allow you to spend money up to a certain limit, only pay interest on what you’ve spent and spend again as you pay your balance down. Though you need to have strong credit to qualify for most business credit cards, there are some credit cards you can get with bad credit. Credit cards can be good to cover gaps in cash flow and to build business credit, but their high interest rates are not ideal for long-term financing.
Small-business grants. Grants are free money that you don’t have to repay. There are many available to small businesses through local and federal government organizations, private organizations and even large corporations. You generally don’t have to meet typical loan requirements to qualify for business grants — rather, they may be based on location or industry.
Crowdfunding. Crowdfunding is a way of raising money for your business through multiple individual investors. It can be done through online platforms that allow investors to learn about your business and decide whether they want to invest. You don’t have to meet any traditional qualification requirements to qualify for crowdfunding, but you may give up some ownership in your business or perhaps discounts or free goods or services in exchange for funding your business.
Friends and family loans. If you know people who are willing and able to support your business financially, it may be worth asking them for a loan. Make sure they are people you trust and who trust you, and put your agreement in writing to avoid any personal disputes.
Invoice factoring. If you have money tied up in unpaid customer invoices, you can consider selling them to a third-party company in exchange for a lump sum of cash. Rather than interest, you’ll be selling your invoices at a discount — typically up to 85 percent of their value. Invoice factoring companies take over collections from your customers, so they are generally more concerned with their creditworthiness than yours.
Merchant cash advances (MCAs). MCAs allow you to borrow lump sums of cash against your business’s future revenue. MCAs are one of the most expensive forms of business financing, they are not federally regulated and they typically use factor rates instead of interest rates, which can convert to APRs in the triple digits. For these reasons, they are best used as a last resort.

Work on fixing your credit

If you have a little time before you need business funding, you can work on building up your personal credit before you apply for another loan. Think about pulling copies of your credit report to dispute any inaccuracies, paying down as many balances as possible or taking out a personal debt consolidation loan.

Build your business credit

If you have the time, you can also build your business credit through a small secured business credit card or business line of credit. These exist for the purpose of building credit, and have much more lenient qualification requirements as long as you can secure the card or credit line.

Bottom line

Several types of lenders offer bad credit business loans, but not all will be the right fit. If your business is already struggling or you’re starting a business with no money and bad credit, weigh your options carefully. Taking on a loan you can’t manage could mean tanking your credit even further. If you can wait, take some time to build your business credit, which can make it easier to qualify for a loan with lower interest rates.

Ultimately, before applying, research your options, compare loan terms and conditions and weigh the pros and cons of bad credit business loans.

Frequently asked questions

Yes. You can get financing even if you are starting a business with no money and bad credit. Some lenders only require a credit score as low as 500 to qualify for a bad credit business loan.
To get a business loan with bad credit, explore online lenders, microlenders, CDFIs and MDIs, which may have low or no credit score requirements. Finding a business loan with no money can be tricky. It’s possible to find a lender like Kiva that doesn’t have an annual revenue requirement, but most lenders will want to see your business generate revenue before approving you for a loan.
It’s possible to get a business loan with bad credit and no collateral. Qualifying with a traditional lender can be challenging, though. So, an online lender or CDFI could be ideal in this case. Consider the pros and cons of small business loans with bad credit to make sure you’re getting the best deal and can afford to repay the loan, which can help boost your credit and make it easier to qualify for better terms in the future.