Finding a bad credit business loan shouldn’t have to be difficult. If good credit was required to finance a business, many business owners would never have opened their doors. The truth is that you can acquire funding even if you have bad credit, provided that you go to the right institutions to get it.
Bad credit business loans make up a significant percentage of small business lending. It makes sense. Entrepreneurs don’t usually hit a home run on their first venture. They try, fail, and try again, steadily lowering their credit score and depleting cash reserves as they go. By the time a serial entrepreneur finds the right idea and business model, they may be in a position where funding options are limited. Getting a business loan with bad credit may be the only option left, so they need to get creative. In this article, we’ll explain how to do that.
Preparing to Apply for Small Business Loans with Bad Credit
The scenario described above, which we’ll call the “serial entrepreneur,” is just one of many situations where business loans for bad credit owners might be required. Unforeseen adversity, something many small businesses experienced in 2020, can also cause credit issues. Begin by reviewing your credit profile. Your personal credit score will be a factor, as will the financial performance of your company. Compile written documentation on both before searching for a lender. The minimum credit score you’ll need is:
- For Most Banks: 680
- For SBA Loans: 640
- For Online Term Loans: 600
- For Merchant Cash Advances: 500
These are general requirements and will vary from lender to lender. Many local banks and credit unions won’t touch you if your credit score is under 700. Others are more flexible, particularly if they are SBA partners. Those guidelines are set by the federal government. Online lenders can often help you with a term loan or business line of credit. If that doesn’t work, try to get a merchant cash advance or invoice factoring. These are based on your account receivables or credit card invoicing, so you won’t need a high personal credit score.
Be prepared to pay a high interest rate. Lenders take on more risk when they approve bad credit loans because there’s usually a good reason why those scores are low. It’s not always the borrower’s fault, but the lender can only work with the numbers they have on paper.
Bad Credit Business Lending Options
Banks, credit unions, and online lenders are going to be the preferred financing options for most small business owners, but bad credit changes things. You may need to consider:
- Non-Profit Microlenders
Established for low-income and underserved business owners, microlenders are non-profit entities that issue secured loans in small amounts, typically $35,000 or less. Some of these lenders will approve you with a credit score under 600.
- Invoice Factoring
If you have outstanding invoices and a solid customer payment history, you may be eligible for invoice factoring. The lender will buy your accounts receivables for a discount. They will then collect on those invoices to get paid back. Struggling businesses often do this to pay expenses and create cash flow.
- Business Credit Cards
Depending on why you need financing, the answer you’re looking for may be a business credit card. These come in all shapes and sizes, from the high-end travel rewards cards to pre-paid and secured credit cards that are made for folks with bad credit. You can use them for expenses and build your credit at the same time.
- Merchant Cash Advance
A merchant cash advance doesn’t really classify as a loan, but it does fall in the finance category. The cash advance is given based on your average daily or monthly credit card sales. It’s simply a way to turn plastic into available cash faster, often within twenty-four hours.
For your convenience, we’ve compiled a list of some of the lenders that offer each of the services above. To save you time, we’ve also looked at customer reviews and business ratings for each of these so that you can see what others are saying about them.
Best Non-Profit Microlenders for Bad Credit Loans
Microloans are a great option if you have a new business idea, need to pay off expenses, or want to expand. Your risk will be low because the amounts you’re borrowing are smaller and lenders who specialize in microloans tend to be more lenient on credit requirements. We did some research on microlenders and came up with a “top five” list. There are others out there, so don’t be afraid to explore further, but from what we’ve seen these are the institutions that give you the best chance for a bad credit business loan.
- SBA Microloans
The US Small Business Administration wants your business to succeed and they’re accustomed to working with companies that have bad credit. Their average loan is roughly $15,000, but they’ll lend you up to $50,000 with a 7% to 13% APR.
- Accion USA
A worldwide non-profit microlender that partners with major corporations in the United States, Accion’s mission is to provide funding to struggling small businesses. The minimum credit score required for a loan is 575.
This is our top choice for business owners looking for interest-free loans of up to $10,000. Utilizing their crowdfunding platform, Kiva works with corporate partners to provide flexible payment terms of three to thirty-six months.
One of the top microlenders in the SBA network, LiftFund can provide you anywhere from $100 to $1 million in funding. If you’re financing a startup, you need to show another source of income besides the business.
- Opportunity Fund
This microlender operates in California, Nevada, Washington, and New York. Opportunity Fund specializes in business loans for women and minorities and can lend you anywhere from $2,600 to $250,000.
Best Invoice Factoring for Struggling Small Businesses
Sometimes looking for traditional small business loans with bad credit is not the right solution. Invoice factoring is a way to generate immediate cashflow without going through a credit approval process. You’re not borrowing. You’re selling your accounts receivables. There are local banks and credit unions that offer invoice factoring, but they are few and far between. Rather than search randomly, we recommend that you start with the following institutions. These are the top five based on our research:
The best overall invoice factoring option we’ve seen is BlueVine. They have an existing customer base of over 125,000 that they’ve funded with more than $6.5 billion through their factoring program. You need a credit score of at least 530 to qualify.
If you’re dealing with larger invoices and looking for better rate for factoring, Southern Bank’s altLine is a good option. They charge 0.75% to 3% per thirty days with a one-time origination fee of $350 and a $30 wire transfer fee.
- Triumph Business Capital
Though known best for their invoice management web portal, we’re putting Triumph Business Capital on this list because you only need a personal credit score of 500 for them to do business with you.
- RTS Financial
Trucking and freight companies often look to factoring to cover maintenance and transportation expenses while they’re waiting for their invoices to get paid. RTS Financial specializes in factoring for trucking companies.
- Paragon Financial Group
Are you looking for non-recourse factoring for bankruptcy protection? The banks won’t offer it. Paragon Financial Group will. You need to have a minimum of $30,000 in monthly invoicing, but a low credit score is not an issue.
Best Bad Credit Business Credit Cards to Apply For
This section may seem out of place in an article about getting a business loan with bad credit, but a business credit card essentially provides you an unsecured loan every time you use it. They can be particularly useful for expenses while you’re waiting to get paid.
You don’t need a high credit score to get a business credit card. You can opt for the secured card, which is easy to get, or apply for an unsecured card and hope for the best. We’d recommend the former. Here are a few of the best secured business credit cards:
- Wells Fargo Business Secured Credit Card
Widely regarded as a bad credit borrower’s best friend, Wells Fargo offers a secured credit card for business owners that has a 1.5% cash back option and $1:1 rewards points. It’s a great credit builder and you can open an account with anything from a $500 to a $25,000 credit line.
- BBVA Compass Business Secured Credit Card
If your business is located in Alabama, Florida, Texas, Arizona, Colorado, California, or New Mexico, you can apply for a secured business credit card from BBVA. It’s secured by a savings account, can be used to track business expenses, and the minimum balance to open is $500.
- OpenSky Secured Visa Credit Card
Get a secured business credit card with a one-time refundable deposit and no credit check from OpenSky to build your credit and track business expenses separately from personal charges. One of the features we particularly like with this card is the comprehensive credit education section on their website.
- Discover it Secured
Build your credit and work your way back to eligibility for an unsecured credit card with the Discover it Secured card. This card works similar to Discover’s regular offerings, with 2% cash back and dollar-for-dollar cash back bonus match at the end of the year. This is a great option for newbies with no credit history.
If you want to take a shot at getting an unsecured credit card, apply for the Credit One Bank Visa Credit Card. They’ll approve just about anyone by authorizing a small credit limit to start out (typically $300) and periodic offers to increase that limit for a fee. You can quickly build up to over $1000 and keep track of all your business expenses in one place.
Best Merchant Cash Advances When You Have Bad Credit
If you’re unable to secure any of the financing we’ve already described, you may need to look at a merchant cash advance (MCA) to generate funds. This should be a last resort, since MCA lenders charge a high percentage of your daily credit card sales. If you can wait for money to come in or have another option, go with that first. Here are the companies that offer MCAs:
Considered the best MCA option for a business loan with bad credit, Fundbox only requires a minimum credit score of 500. Their interest rates are low also, just 4.66% for a 12-week term and 8.99% for a 24-week term. You control the amounts you want to have advanced to you, which can be up to $150,000 if you have sufficient sales.
If you’re looking for a lending marketplace that will get you the best rate on an MCA, try applying at Lendio. They can get you merchant cash advances from $5000 to $200,000 with payment terms of up to two years and interest rates as low as 18%. Funds can be deposited into your account within twenty-four hours in some cases.
Some businesses require MCAs regularly, particularly if you’re seasonal or have long sales cycles on high ticket items. CanCapital is the right choice for you if you fall into either of those categories. They’ll offer up to $250,000 with payment terms of six to eighteen months and they also do traditional business loans.
By far the most convenient and fastest turnaround on this list, Kabbage can approve you and get funds into your account within 48 hours using Paypal. They also offer point of sale (POS) solutions and business checking accounts, making them a one-stop shop to get your new business to the next level.
Traditional business loans for bad credit business owners are hard to come by, but there’s always a solution if you search for it. Please use this article as a blueprint to get you started. These companies regularly help business owners in the same situation you are in.