The Bottom Line
Small business loans help you expand operations, cover payroll, pay for supplies, and manage cash flow. When you have poor credit, finding a lender can be difficult, but there are many loan options available with credit scores as low as 500. Some lenders don’t even have a minimum score and, instead, look at overall business health.
We recommend PayPal if you want a short-term loan because it offers terms as short as 17 weeks. Lendio is excellent if you need a line of credit, while OnDeck is useful if you expect to apply for more money later. Check out the other lenders on our list for other situations, like Credibly if you have high revenue or Rapid Finance if you need long-term financing.
Compare the Best Small Business Loans for Bad Credit
| Small Business Loan | Best For | Minimum Credit Score | Processing Time | Terms Available |
|---|---|---|---|---|
| LoanBuilder-PayPal | Best Short-Term Loans | 580 | Next business day | 17-52 weeks |
| Lendio | Best Line of Credit | 600 | Up to one to two weeks | Six months to two years |
| OnDeck | Best for Repeat Loans | 625 | Same-day | Up to 24 months |
| Rapid Finance | Best for Long-Term Financing | Not considered | Within hours | Up to 60 months |
| Credibly | Best for High Revenue | 500 | As soon as same-day | Up to 24 months |
Guide to Choosing a Small Business Loan for Bad Credit
What Is a Small Business Loan for Bad Credit?
A small business loan for bad credit is a loan that is meant for business owners with too many outstanding debts and a history of paying their bills late or not paying them at all. A bad credit history may also include other negative factors like collection items. According to FICO, a poor credit score is anything under 580. Small business loans for bad credit often come with higher interest rates because the borrower is considered a lending risk. Keeping up with the payments and making them on time may help a borrower with bad credit bump up their credit score
What Is a Bad Credit Score?
According to FICO, a bad credit score “is well below the average score of U.S. consumers and demonstrates to lenders that the borrower may be a risk.” The table below highlights each rating and the score range as per FICO.
| FICO Credit Score Ranges | |
|---|---|
| Rating | Score Range |
| Exceptional | 800+ |
| Very Good | 740 to 799 |
| Good | 670 to 739 |
| Fair | 580 to 669 |
| Bad or Poor | Under 580 |
| No Credit | Not enough information to score |
How to Apply for a Small Business Loan for Bad Credit
Applying for a small business loan when you have bad credit is similar to applying for any other type of loan. You have to complete an application online, over the phone, or in person with your lender. As with any other loan, your lender may ask for supporting material to advance your application, including:
- Business plan: Some lenders may ask for a business plan that provides an overview of your company along with a written proposal about how you plan to expand your business. This plan should also include financial statements highlighting your revenue and expenses.
- Tax returns: Lenders may ask for recent tax returns for your business, so have those handy. You may also need to submit personal tax returns if asked.
- Letter of guarantee: If your credit is really poor, your lender may ask you to sign a personal letter of guarantee. This allows you to secure your loan using your own assets.
- Credit report: Banks and other lenders may pull your personal credit history along with that of your company. The likelihood of approval drops if you have any negative remarks on your report, including bankruptcies and/or multiple collection items.
Keep in mind that it may take longer to approve an application for a small business loan for bad credit because of the underwriting process. That’s because there may be more paperwork and documents with the application that the team has to go through before a decision can be made. In most cases, people with bad credit must put up collateral to secure the loan, so be prepared to offer some form of security if you want to be approved.
Why You Should Trust Us
We looked at 19 of the best small business loans available and narrowed it down to the five best options for bad credit based on several features and considerations. We considered rates, credit score requirements, loan amounts, and repayment terms. Reviews of customer service, sales, and ease of use weighed heavily into our decision—obtaining a small business loan should be a pleasant, stress-free experience for business owners.
We used this data to review each company to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999 and has helped millions of readers around the world become educated on personal finance.
Frequently Asked Questions
-
Yes, it’s possible to get a business loan with bad credit. Some lenders don’t have a minimum credit score and look at the business’s overall health instead. However, you can expect to pay higher fees or have a higher APR if you have bad credit.
-
The easier business loan to get is one that is secured. This means the loan is backed by collateral, and the lender gets that collateral if the business owner defaults on the loan. The collateral pledged usually includes property, inventory, equipment, savings accounts, blanket liens, and personal guarantees.
-
The Small Business Association does not specify a minimum credit score required to secure an SBA loan. However, SBA loans are provided by lenders who may have minimum score requirements. Typically, this minimum is about 620. However, the higher your score, the more likely you are to receive approval.
-
That depends on the lender. Some lenders may review your personal credit score when you apply for a business loan, especially for new or small businesses. If you miss payments or default on the loan altogether, your lender may report it on your personal credit report.
-
Applying for a business loan can be more difficult and time-consuming than a personal loan. But, understanding what the lender needs and having all your documents can often make the process run more smoothly. While the requirements may vary based on the lender, there are some factors that all of them want to review, including:
- Your personal and business credit scores
- Documents, including personal and business tax returns, business licenses, and photo identification
- Information on how you intend to use the loan
- Financial figures, including revenue and expenses
- Collateral, if needed
-
No, you cannot and should not use your business loan for anything other than its intended purpose. This includes paying any personal debts or obligations you may have. You could run into legal troubles if your lender finds out. They may declare that your loan is in default and recall the loan.
-
A personal guarantee means that the business owner assumes the business debt in the event the business is unable to repay it. This helps protect the lender in the event of default and also makes it easier for a business to qualify for a loan when they might not have it without a personal guarantee.
Maskot / Getty Images
link