What is Bad Credit?
Starting, growing or expanding your small business typically requires an infusion of cash. You may have difficulty getting a loan if you have poor credit.
Most lenders consider your business’s strength, annual revenue and time in business as they decide if you’re a good risk. They also check your credit score.
A high credit score indicates that you’re probably a good risk and likely to repay the loan. You can also earn a lower interest rate and longer repayment terms when you have a high credit score.
Credit scores can range from 300 to 850. A bad credit score of under 649 could prevent you from getting a loan.
Your credit score depends in part on factors like annual income, cash flow, financial history and current debt.
What affects your score?
- Payment history, including any late payments.
- Open credit accounts.
- Charge-offs when a lender writes off debts after you miss six months of payments.
- Accounts in collections.
- Foreclosure on a commercial or personal property.
- Legal judgments from a court when you lose a civil lawsuit.
- Bankruptcy.
Types of Bad Credit Small Business Loan
You can use a small business loan to build your credit history or cover additional staff, payroll, business insurance premiums, inventory purchases, repairs, taxes, emergencies, or rent. Compare the different types of bad credit loans for which you may qualify.
- Cash advance - Use existing cash flow to obtain fast cash even if your credit score is as low as 500.
- Merchant cash advance - Receive a lump sum you can repay via a percentage of your future sales.
- Short-term loan - Repay this high-interest loan within a short time frame of three to 18 months.
- Secured, collateralized or asset-based loan - Use your commercial or personal real estate, equipment or other property as collateral to secure the financing you need. If you don't repay the loan, the lender will own the collateral.
- Factoring - Rely on unpaid invoices as collateral or exchange those invoices for financing from a factoring company.
- Unsecured loan - Gain short-term or long-term financing even if you don't own any assets.
- Online lenders - Review terms and conditions for loans from Kabbage, Fundbox, OnDeck, BlueVine, StreetShares, and Dealstruck, all designed for small businesses with poor credit.
Repair Your Credit
Despite your bad credit, you can get small business financing thanks to these options. In the meantime, work with your financial advisor to create a budget, pay your bills on time, repay debts, and increase your assets. These steps can raise your credit score and sustain your successful small business.
Also consider protecting business assets and operations by reviewing available coverage such as In-Home Business Insurance when appropriate.
If your business must provide employee benefits or health coverage, review options like Medical and Health Insurance for Businesses as part of overall financial planning.
If you're uncertain about the best steps for financing or coverage, talk to an agent.
Frequently Asked Questions
Can I get a loan with a credit score under 649?
Yes—some lenders and alternative financing options, such as merchant cash advances, cash advances, or secured loans, may work with lower credit scores but often at higher costs.
What is a merchant cash advance?
It is a lump-sum payment repaid via a percentage of future sales, which can be faster to obtain but may carry higher effective rates.
How can I improve my business credit?
Create and follow a budget, pay bills and debts on time, increase positive cash flow, and avoid new delinquent accounts.
Should I use collateral to secure a loan?
Using collateral can improve approval chances and terms, but you risk losing the pledged asset if you default.