A loan from a financial institution like a bank or credit union might seem out of reach if your credit isn’t solid. But, borrowers with credit scores as low as 500 may still qualify for bad-credit business loans from alternative sources like online and nonprofit lenders.
Since the interest rates on these products are typically higher than those of conventional small business loans, it is in your best interest to shop around for the most favorable terms and ensure that the payments are within your company’s financial means.
Lucky you, this article covers our recommendations of the top business loans for people with bad credit (typically defined as a FICO score between 300 and 629).
What Exactly Is a Bad Credit Score?
According to the most popular credit scoring models, such as FICO and VantageScore, a bad credit score typically falls between 300 and 629 (on a scale of 300 to 850).
Personal credit scores ranging from 630 to 689 are regarded as fair.
Individual small-business lenders may have different definitions of what constitutes a bad credit score; however, bad-credit business loans are typically available to borrowers with FICO scores below 630.
Although lenders typically focus on your personal credit score, your business credit score may also be used to evaluate your loan application. Your business credit score reflects your company’s payment history with banks, vendors, and other creditors.
Can You Get a Business Loan Even If You Have Bad Credit?
It is possible to obtain a small business loan with bad credit, but applicants with low credit scores may have difficulty getting traditional loans. Furthermore, small business owners with poor credit—scores as low as 580—typically have access to only high-interest rates.
To qualify for a business loan, owners with low credit scores must also demonstrate strong, consistent cash flow, and lenders may require collateral. For these reasons, a merchant cash advance, a type of alternative financing, maybe a better option for business owners with bad credit.
Where can I get a bad credit business loan?
If you have bad credit, banks and credit unions will unlikely approve you. However, these alternative sources may enable you to obtain a business loan despite less-than-ideal credit history.
#1. Online Lenders
Most online lenders require a personal credit score ranging from 500 to 650. However, a few have no minimum credit score requirement, instead focusing on factors such as your company’s cash flow. Online lenders provide faster funding and easier approvals than other business lending options, but they typically charge higher interest rates — even for those with good credit.
#2. CDFIs
A community development financial institution, or CDFI, is a nonprofit organization that receives government funding to provide banking services to low-income or underserved communities. CDFIs are frequently banks and credit unions but do not have the exact stringent lending requirements as those financial institutions. If you qualify for CDFI financing, you could get a low-interest rate. However, funding may take longer than with online lenders.
#3. Microlenders
You may be able to get a microloan for your business even if you have bad credit. Nonprofits typically make microloans. Because profit isn’t the primary motivator for these organizations, they may be more willing to lend to business owners with a spotty credit history.
Some microlenders also participate in the SBA microloan program and may work with newer businesses with bad credit. Many of these lenders target traditionally underserved companies in their communities.
The disadvantage of a microloan is evident from its name: it is small. Funds are typically limited to $50,000, which may not be sufficient for your company’s requirements.
How to Choose a Small Business Loan for People with Bad Credit
When you have bad credit, selecting a small business loan entails more than deciding how much to borrow and shopping around for the best rates. Instead, business owners with bad credit must look for lenders with less stringent eligibility requirements and choose the best option. Consider the following factors when looking for a bad credit small business loan:
Qualification Standards
Most small business loans are granted based on the applicant’s credit score. As a result, the lender’s qualification requirements are the most crucial factor to consider when looking for a bad credit business loan. Check your credit score, then compare the minimum credit score requirements at different lenders to see where you might qualify.
Loan Offerings
Lenders’ small business loan offerings differ. Lenders not only provide a variety of loan amounts and repayment terms, but some also provide secured loans, which are easier to qualify for than unsecured options.
APR
Annual percentage rates (APRs) on business loans vary by loan type and the lender but typically range from 9% to 99%. However, the lowest rates are only available to the most qualified borrowers, and bad credit business owners are typically offered rates near the top of the APR range. If you’re likely to qualify through multiple lenders, compare APRs to see which option has the lowest rates.
Additional Fees and Costs
Many traditional and online lenders charge origination fees to offset the costs of processing applications and underwriting loans. However, lenders specializing in bad credit borrowers frequently charge higher fees than their competitors. To help offset the institution’s lending risk, you may have to pay higher origination fees, late payment fees, or prepayment penalties.
The lender’s reputation. If you have bad credit, you may be unable to choose from the top lenders. However, assessing a lender’s reputation is still necessary before committing to a loan. Read online reviews and consult with other local business owners to determine which lenders have the best reputation—and which to avoid.
Underwriting and Funding Timeliness
Many lenders that cater to bad credit borrowers have slower underwriting and funding times than competitors. However, comparing lenders and determining which offers the best turnaround time for your borrowing needs can still be beneficial.
Best 5 Business Loans for Bad Credit 2023
#1. OnDeck
Minimum Credit Score: 625
Processing Time: Same-day
Terms Available: Up to 24 months
OnDeck is the best overall small business loan lender for bad credit because it accepts credit scores as low as 625 and offers same-day funding. You can apply for a loan if you’ve been in business for at least a year, have a business bank account, and have at least $100,000 in annual revenue.
Overview
OnDeck, founded in 2006, is a publicly traded small business lender that operates online and over the phone.
You only need a credit score of 625, which is lower than what many providers require. Furthermore, after loan approval, you can receive funds the next day and more money after paying half of your loan.
Borrowing amounts range from $5,000 to $250,000, with credit lines ranging from $6,000 to $100,000. Your company’s revenue determines the amount you can borrow.
Term loan repayment terms are up to 24 months, while a line of credit loans are only 12 months. Once you’ve repaid half of a term loan, you can apply for more money, and you won’t be charged any interest on your existing loan. Unlike most lenders, OnDeck makes repayments automatically, either daily or weekly, based on the business information you provide.
As of March 2023, the minimum APR for term and line of credit loans is 29.9%. If you repay your loan early, your remaining interest may be waived. This prepayment benefit option, however, will result in a higher APR. In addition, OnDeck will take a blanket lien on all business assets and require a personal guarantee.
#2. LoanBuilder
Minimum Credit Score: 580
Processing Time: Next business day
Terms Available: 13-52 weeks
LoanBuilder-PayPal was chosen as the lender with the best short-term loans because it offers loan terms ranging from 13 to 52 weeks. The minimum credit score for a loan is 580, and funding can occur as soon as the next business day.
Overview
PayPal, an online payment system, is now offering a short-term small business loan using this platform. This loan is also known as a PayPal Business Loan—interchangeable. WebBank, an FDIC-insured lender, makes the loans. Loan terms are limited to 52 weeks, and a credit score of 580 is required to qualify.
Your loan application can be completed online or over the phone in five to ten minutes, and approval is immediate. Following approval, funds ranging from $5,000 to $150,000 will be deposited directly into your business bank account as soon as the next business day.
A blanket lien and a personal guarantee are required when taking out a loan. Automatic weekly payments are deducted from your company’s bank account. While you cannot change the repayment frequency, you can choose which day of the week payments are made. If a payment fails, there is a $20 non-sufficient funds (NSF) fee.
If you make your payments on time, you won’t have to pay any fees other than a one-time borrowing fee based on a percentage of the total loan amount—rather than a traditional APR. This means paying off the loan early will not save you money.
#3. Lendio
Minimum Credit Score: 560
Processing Time: One to two weeks
Terms Available: One to two years
Consider a small business line of credit from Lendio if you require flexible financing. This is the best line of credit option for small business owners with bad credit because it only requires a 560 credit score, and there is no requirement to use all of your funds. Furthermore, you pay nothing for any unused funds. Many think of a credit line as a safety net—it’s there if you need it.
Overview
Lendio is a small business lending marketplace founded in 2011 and connected businesses with 75+ different lenders to help them secure the funding they require.
Because Lendio does not originate the loan, you will receive multiple offers and can choose the one that best meets your requirements.
Lines of credit applications take 15 minutes and are ideal for businesses with at least six months of operation and $50,000 in annual revenue. To receive funding, business owners must have a credit score of 560 and be willing to wait up to two weeks. Loan terms range from one to two years.
You can borrow against a line of credit as often as you want if you don’t exceed your credit limit. Borrow between $1,000 and $500,000 at 8% to 24% interest. Depending on the lender, a personal guarantee may be required.
Your repayment amount and frequency are determined by the final lender you select. However, the higher your credit score and the longer you’ve been in business, the lower your payments will be.
#4. Rapid Funding
Minimum Credit Score: Not considered
Processing Time: Within hours
Terms Available: Up to 60 months
Rapid Finance allows you to borrow up to $1 million and have loan terms of up to 60 months, depending on your monthly revenue. When determining whether your business will qualify for funding, this lender will consider the overall health of your business, not just your personal or business credit score. Because of these factors, it is the best small business loan option for long-term financing with bad credit.
Overview
Rapid Finance provides small and medium-sized businesses with lending solutions. Its website has excellent reviews and one of the longest business loan terms available, at 60 months (most lenders offer terms of two years or less). Furthermore, when you apply for a loan, you can frequently receive approval and funding within hours.
Many of its small business loans require your company to be three to six months old. Other loan types, such as the majority of short-term loans, require at least two years of business experience. It is necessary to have a blanket lien.
Rapid Finance advertises daily, weekly, or monthly payments, but the website provides few additional details. Because no interest rates are published online, repayment information must be obtained from customer service.
#5. Credibly
Minimum Credit Score: 500
Processing Time: As soon as same-day
Terms Available: Up to 24 months
To qualify for a small business loan with Credibly, you must have at least $15,000 in monthly revenue, funding is quick, and your credit score must be at least 500. That is why Credibly is our pick for the best small business loan for high-revenue businesses.
Overview
Credibly is a lender founded in 2010 with one of the lowest minimum credit scores (500) of any lender we investigated.
Businesses must have at least $15,000 in monthly revenue and be in operation for at least six months. You will also pay more fees than with other lenders.
There are several types of small business loans to choose from:
- Working Capital Loan
- Business Expansion Loan
- Business credit line
- SBA financing
- Advance on merchant cash
- Machinery Finance
- Invoice Factoring
You can borrow up to $400,000 and have loan terms of up to 24 months, depending on your chosen Credibly loan product.
In addition to your factor rate, Credibly charges a 2.5% origination fee. The factor rate begins at 1.15. This means that on a $10,000 loan with a 1.15-factor rate, you will pay a $1,500 payment in addition to the 2.5% origination fee.
Conclusion
Small business loans assist you in expanding operations, covering payroll, purchasing supplies, and managing cash flow. Finding a lender with bad credit can be difficult, but many loan options are available with credit scores as low as 500. Some lenders don’t even have a minimum score and, instead, look at the business’s overall health.
If you have bad credit, we recommend OnDeck for your small business loan needs because it offers same-day funding with a minimum credit score of 625. It also rewards loyalty by allowing you to apply for more money after repaying half of your loan and not being charged any interest on your original loan.
Business Loans for Bad Credit: Related Articles
- WHAT IS BUSINESS CREDIT: Definition and Uses
- Easy Working Capital Loans What You Should Know
- HOW TO GET A BUSINESS LOAN WITH BAD CREDIT: All You Should Know.
- WHAT IS BUSINESS CREDIT: Definition and Uses
- Fast Business Loans: The Top Best 2023 UK Options & How-To Guide
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