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Top 5 Best Bad Credit Business Loan Options for Small Businesses

Ezra Cabrera | September 30, 2022


    Securing funding is one of the many struggles that small businesses face. But a bad credit score is usually the biggest roadblock that prevents companies from qualifying for business financing with excellent terms.

    Fortunately, more and more alternative lenders offer different bad credit business loan options for entrepreneurs with poor credit. However, there is a trade-off. Because poor credit borrowing carries a risk, lenders usually charge higher interest rates and fees.

    Key Takeaways

    • Credit scores are essential determinants for eligibility as it shows an individual’s behavior towards credit. The higher the individual’s or business's credit score, the less risky they are as borrowers. 

    • Bad credit business loan options include business credit cards, microloans, invoice financing, equipment financing, and merchant cash advances.

    • To improve your chances of getting credit, consider shopping for offers from different lenders, pledging collateral, making a down payment, or applying for a lower loan amount. Preparing for the application will also help expedite the loan application process and approval.

    What is Credit Score, and Why Is It Important?

    Simply put, credit scores serve as a summary of your behavior as a creditor. The credit bureaus use the FICO score to determine your eligibility. The score is calculated using the 5C’s of credit: character, capacity, capital, conditions, and collateral. By examining these five factors, credit bureaus can determine how reliable and responsible you are when paying off your credit. 

    Here are the different FICO score ranges and what they mean:

    • Exceptional: 800 to 850

    • Very Good: 740 to 799

    • Good: 670 to 739

    • Fair: 580 to 669

    • Poor: 300 to 579

    Bad credit scores are borrowers with a FICO score of 300 to 669. Borrowers with low FICO scores are more likely to get their applications denied if they apply for a loan from traditional lenders. While they may still have a chance of qualifying for loans from online lenders, it comes at a cost (literally). 

    Can You Get a Small Business Loan with Bad Credit?

    Yes, some lenders cater to small business owners with low credit scores. However, alternative lenders that cater to bad credit borrowers are more likely to charge higher interest rates for the loan to mitigate the risk. Loan amounts would also be lower, and the repayment period would most likely be shorter for these types of loans. 

    Bad Credit Business Loan Options

    A bad credit score doesn’t necessarily mean you can’t qualify for other products. Some lenders may still work with borrowers with less-than-perfect credit. That is because most lenders don’t usually consider credit scores as the primary basis of your company’s overall health.

    While a bad credit score may disqualify you for some products like long-term loans or SBA loans, lenders may offer alternative loan options, including:

    • Business Credit Cards

    • Microloans

    • Invoice Financing

    • Equipment Loans

    • Merchant Cash Advance (MCA)

    Let’s take a deeper look at each option below: 

    Business Credit Cards

    Business credit cards are the easiest financing option to qualify for. While the underwriting process for typical loans can take weeks, you can get approved for a business credit card within a day. Unlike bank loans, you also won’t have to provide a long list of documents. However, most business credit cards will come with a personal guarantee requirement. 

    Once approved, business credit cards can give you access to continuous cash. You can use the credit line in several business initiatives, including:

    • Buying materials or office supplies

    • Reordering inventory

    • Buying meals for your employees or clients

    • Travel tickets

    • Buying new equipment or replacing one

    Plus, with more and more businesses opting for non-cash payment methods, getting a business card can be considered essential. 

    Moreover, business credit cards can give you additional perks like points and rewards, which you can convert to cash back or travel miles. 


    As the name implies, microloans are small-amount loans granted to small business owners. The goal is to help startups and other underserved communities (i.e., companies owned by women, veterans, and minorities) get the funding they need to grow their businesses. With microloans, businesses can get up to $50,000 of financing, which they can pay back within five years. 

    Microloans can be used for working capital, buying supplies, furniture, fixtures, or reordering inventory. 

    Many microloan lenders offer loans to businesses with no established credit history and low-income companies. However, applicants must ensure a strong cash flow projection and a well-written business plan.

    Invoice Financing

    Invoice financing lets businesses advance cash tied up on their invoices. That way, you won’t have to wait 30 to 90 days for their clients to pay up and avoid cash flow problems. With advanced cash, you can improve cash flow and cover business expenses, including payroll, inventory, utilities, rent, and more. 

    Qualifying for invoice financing is relatively easy, too. Most lenders don’t consider the business’ credit score for eligibility. Instead, they look at your customer’s credit scores since the financing’s repayment will ultimately depend on their repayment behaviors. Ideally, it would help if you worked with customers who pay on time to increase your odds of qualifying for financing.

    Equipment Loans

    Equipment financing provides companies with the funds needed to purchase equipment essential for their operations. It could be computers, photocopy machines, ovens, stoves, or large machinery such as forklifts or cranes. With equipment financing, they won’t have to dig into their cash reserves to pay for the equipment outright, potentially causing cash flow problems. 

    Equipment loans are also self-securing loans. In other words, the equipment will serve as collateral for the loan. With that security, most lenders might be able to offer to fund businesses with credit scores of at least 600. However, lenders may repossess your equipment if you default on the loan.

    Merchant Cash Advance (MCA)

    A merchant cash advance might be viable if you can’t qualify for traditional business loans because of a low credit score. With merchant cash advances, lenders offer you a certain amount of cash up front, which you can repay using a fixed percentage of your future debit or credit card sales. 

    Unlike typical loans where you make monthly payments, MCAs are repaid daily or weekly, plus interest, until the advanced amount is paid in full. The repayments will vary depending on the volume of transactions you have on that given day or week. Essentially, the higher the amount of your debit or credit card transactions, the faster you’ll be able to pay off your loan. 

    You don’t necessarily need solid credit to qualify for an MCA. The main deciding factor for eligibility is the volume of your debit or credit card sales. As long as you show that your business deals with significant credit card sales, you’ll have better odds of qualifying. 

    How to Improve Your Chances of Getting a Business Loan with a Bad Credit

    Your credit score is just one factor that lenders use to determine your loan eligibility. A low credit score will hurt your loan qualification and limit the available options. But if you make it up in other ways, you might be able to improve your chances of qualifying for funding. 

    Here are some tips to follow:

    • Get offers from multiple lenders. Instead of going with the first lender you meet, shop around for lenders to get different offers. From there, you can compare the rates (usually based on your credit score and revenue) and decide on the best financing option for your business. 

    • Pledge collateral. Collateral, such as real estate or equipment, offers a layer of security to lenders. If the business defaults, the lenders can seize the collateral and use it as payment for the loan. That way, they’ll be facing lesser risk. Moreover, pledging collateral encourages businesses to repay the loan, so they won’t lose valuable assets and risk disrupting business operations.  

    • Provide a down payment. If you can’t pledge collateral, consider a down payment for the loan. Like collateral, down payments are a form of security for lenders. The bigger your down payment is, the smaller the loan will be, making it a less risky deal overall.  

    • Apply for a smaller loan amount. Smaller loan amounts translate to lower risks since they’re easier to pay off. Applying for a smaller loan amount can also assure the lenders that you’ll be able to pay the loan back in full. 

    • Prepare for the application. Preparing for your loan application improves your chances of qualifying and expedites the loan process, so you won’t have to go back and forth if the lender asks for anything. This will demonstrate that you’re serious about your investment and growing your business. 

    Where Can You Get Bad Credit Business Loans?

    Small business owners have several options when looking for bad credit business loans, such as:


    Nonprofit organizations, government agencies, and SBA-accredited lenders often provide microloans. 

    Online Lenders

    Online lenders are more lenient when it comes to borrowers with bad credit. There are plenty of online lenders in the market, and not all are created equally. Be sure to read reviews or ask for referrals from people you know. 

    Community Development Financial Institutions (CDFIs)

    CDFIs are private financial institutions that help underserved communities receive economic opportunities. You can find CDFIs in your local community through the Opportunity Finance Network CDFI locator

    Your Bank

    While banks often require a high personal credit score, they may be willing to consider other mitigating factors if you have a current relationship with them. They may consider positive cash flow, personal cash resources and reserves, and transaction history.

    Frequently Asked Questions

    Can I get an SBA Microloan with bad credit?

    Yes, the SBA microloan program is available to small business owners with little to no credit history. It is geared towards startups and early-stage businesses, especially for women- and minority-owned businesses in low-income communities. These loans are available to small business owners with little to no credit history. 

    Can you get a business loan with a 450 credit score?

    A 450 FICO® Score is lower than the average credit score, belonging to the Very Poor range. Many lenders may reject their loan applications or be asked to pay extra fees, pledge collateral, or put down payments. 

     Can my business get a loan if my personal credit is bad?

    Generally, lenders require a FICO® Score of at least 500 to qualify for bad credit business loans. A score of under 670 is considered fair or poor. But getting a loan with bad credit is possible depending on the lender you’re working with. However, it usually comes at a cost higher than those with good credit. 

    What is the easiest loan to get?

    Secured business loans are the easiest loans to qualify for. This means the loan is backed by collateral, such as real estate, inventory, equipment, and other personal guarantees. The collateral reduces the risk for lenders since they can repossess your assets if you default on the loan.

    Final Thoughts on Bad Credit Business Loans

    A bad credit score can hurt your chances of getting approved for business loans. But that is not to say that you can’t qualify for other types of business financing. As mentioned above, financing options like business credit cards, microloans, invoice financing, equipment loans, and merchant cash advance are excellent choices because eligibility doesn’t usually focus on the minimum credit score of the business owner.

    Like any other business strategy, choosing a bad credit business loan requires a great deal of research and planning. You may have to start with smaller loan amounts. But as long as you’re consistent with payments and build a good track record, you’ll be able to improve your credit score and qualify for more comprehensive small business loans in the future. 

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.