How to Get a Business Loan with Bad Credit: 9 Steps

Getting a business loan with bad credit isn’t impossible, but it takes a smarter approach. Most traditional banks will turn you away if your credit score is below 600. But that doesn’t mean you’re out of options. Lenders like online alternative lenders, credit unions, and microlenders are often more flexible. They look at your business cash flow, time in operation, and collateral—not just your credit score. So don’t give up. Instead, follow this step-by-step guide to improve your odds and find the right loan for your situation.

1. Know Exactly Where Your Credit Stands

Before you apply for any loan, you need to see what lenders will see. Pull your personal credit report from all three major bureaus—Equifax, Experian, and TransUnion. You can get free copies once a year from AnnualCreditReport.com. Also check your business credit report from Dun & Bradstreet, Equifax, or Experian if you have a business entity.

Look for errors. A surprising number of reports contain mistakes that drag your score down. Dispute any inaccuracies. Removing a single wrong late payment can boost your score in a few weeks. That’s the cheapest and fastest way to improve your credit.

What’s a Bad Credit Score for Business Loans?

Most lenders consider a FICO score below 580 as bad credit. But for small business loans, the threshold is often 600 or even 640. Alternative lenders may accept scores as low as 500 if other factors are strong. Your personal score matters most when your business is new. As your business builds its own credit history, lenders weigh both.

2. Check Your Business’s Revenue and Cash Flow

Lenders want to see that your business generates enough money to make monthly payments. Even with bad credit, a strong cash flow can convince a lender to approve you. Gather your bank statements for the last 6 to 12 months. Some online lenders only require a few months of bank statements—no tax returns.

Calculate your average monthly revenue and your net cash flow. You’ll also want to know your debt-service coverage ratio (DSCR). That’s your monthly net income divided by your total monthly debt payments. A DSCR above 1.25 looks strong to most lenders.

If your cash flow is inconsistent, consider ways to smooth it out, like invoicing more promptly or negotiating longer payment terms with suppliers. Lenders love predictability.

3. Decide What Kind of Loan You Need

Not all business loans are the same. Some are easier to get with bad credit than others. You have several options:

• Term loans: A lump sum repaid with interest over a fixed period. Harder to get with bad credit, but possible with a secured asset.
• Business lines of credit: A revolving credit line you can draw from as needed. More flexible but often requires good credit.
• Invoice factoring or financing: You sell your unpaid invoices at a discount for cash. Approval depends on your customers’ credit, not yours.
• Equipment financing: The equipment itself serves as collateral, making it easier to get approved.
• Merchant cash advance (MCA): You get a lump sum in exchange for a percentage of future credit card sales. Easy to get but very expensive.
• Microloans: Small loans (typically up to $50,000) from nonprofits or community lenders like SBA microloan intermediaries.

Think about how much money you need and how quickly you need it. For fast cash with bad credit, an MCA or invoice financing might be the only option. For larger amounts, you may need to wait and improve your credit first.

4. Explore Lenders That Accept Bad Credit

You don’t have to settle for payday-loan-style predators. Several reputable online lenders specialize in bad credit business loans. Research lenders like Fundbox, OnDeck, Kabbage (now American Express), and BlueVine. They use algorithms that weigh your cash flow more than your credit score.

Also look into community development financial institutions (CDFIs). These nonprofits offer small business loans to underserved borrowers, often with flexible credit requirements. The SBA Microloan program is another route—it funds organizations that lend to startups and small businesses.

Stay away from lenders who promise approval with no credit check and demand upfront fees. Legitimate lenders check your credit, even if they accept low scores. They may use a soft inquiry that doesn’t hurt your score until you accept the loan.

5. Prepare a Strong Loan Application Package

Your application package should tell a compelling story about your business. Lenders want to see that you’re responsible and capable. Here’s what to include:

• Business plan: Keep it concise but clear about how you’ll use the funds and how you’ll repay them.
• Financial projections: Show realistic revenue and expense projections for the next year.
• Tax returns: Personal and business returns for the past two years.
• Bank statements: Last 6 months of business and personal bank statements.
• Legal documents: Business licenses, registrations, and any contracts or leases.

A well-organized package can set you apart. It also shows lenders you’re serious and professional, which may offset a bad credit score.

6. Offer Collateral or a Co-Signer

If your credit is weak, securing the loan with collateral can make the difference between approval and denial. Collateral is an asset the lender can seize if you default. Acceptable collateral includes real estate, equipment, inventory, or even your personal assets like a home or car.

Another route is to get a co-signer with good credit. A co-signer signs the loan alongside you and is legally responsible for repayment if you default. This reduces the lender’s risk. If you have a business partner, family member, or trusted friend with strong credit, ask if they’d be willing to co-sign.

Be careful: if you fail to repay, you’ll lose the collateral, and your co-signer’s credit will suffer too. Only use these options if you’re confident in your ability to repay.

7. Compare Offers and Watch the Fine Print

Don’t just accept the first loan offer that comes along. Compare several options. Look at the total cost, not just the monthly payment. Borrowers with bad credit often get higher interest rates and fees. The APR (annual percentage rate) shows the true cost, including fees.

Watch out for prepayment penalties, origination fees, and hidden charges. Some lenders charge a penalty if you pay off your loan early. That can make an otherwise affordable loan very expensive.

Use a loan repayment calculator to estimate monthly payments. Make sure they fit comfortably within your budget. A general rule: your total monthly business debt payments shouldn’t exceed 30% of your monthly revenue.

8. Apply When Your Credit Is at Its Best

Timing matters. If your credit score is borderline, wait a few months to see if you can improve it. Pay down credit card balances, fix any errors, and make all payments on time. Even a 30-point improvement can move you into a better rate bracket.

Avoid applying to multiple lenders at once. Each application may trigger a hard inquiry, which can lower your score. Space out applications or use lenders that do a soft pull for prequalification. Many online lenders let you prequalify with a soft credit check that doesn’t hurt your score.

9. Build Your Credit for the Future

Even after you get a loan, keep building your credit. Make on-time payments, which will help your credit over time. Open a business credit card and use it responsibly. Monitor your business credit reports regularly.

A better credit score opens up cheaper financing options in the future. You’ll be able to upgrade from high-interest merchant cash advances to low-interest SBA loans. So don’t stop at just getting approved—work on building a stronger financial foundation.

Getting a business loan with bad credit is a process. But with careful planning, the right lender, and a solid application, you can get the funding you need to grow your business.

Frequently asked questions

What is the easiest business loan to get with bad credit?

The easiest options are merchant cash advances, invoice factoring, and equipment financing. These loans are secured by future sales, outstanding invoices, or the equipment itself, so lenders worry less about your credit score. However, they often come with higher costs and shorter repayment terms.

Can I get a business loan with a credit score below 500?

Yes, but your options are limited to alternative lenders like merchant cash advance providers or some online lenders. You’ll likely need strong revenue and possibly collateral. Interest rates will be significantly higher, so be prepared for expensive terms. Improving your score to at least 550 might expand your options.

Will applying for a business loan hurt my credit score?

When lenders do a hard credit inquiry, it can temporarily lower your score by a few points. Multiple applications in a short period can compound the effect. To minimize damage, use prequalification tools that perform soft pulls, and space out applications over several weeks.

How does a business loan with bad credit affect interest rates?

Borrowers with bad credit typically pay higher interest rates because they’re considered higher risk. Rates can be 10% to 30% or more, compared to 6%–10% for well-qualified borrowers. Always compare the total cost of the loan, including fees, to understand what you’ll actually owe.

Can I use a co-signer for a business loan if I have bad credit?

Yes, a co-signer with good credit can significantly improve your approval odds and get you a lower interest rate. The co-signer is legally responsible for repaying the loan if you default, so it’s a serious commitment. Choose someone who understands the risk and has strong financial standing.