Skip to content

Getting a Business Loan with Bad Credit

Posted on by Dawna M. Roberts in LawFebruary 09, 2023

Every entrepreneur will face a day when they need financial auxiliary; a lucky few will end up making deals on television shows like the UK’sDragon’s Denor Shark Tank.For everyone else wanting to start a business, there are other ways to obtain financial fuel. Many choose to take out a loan, apply for a government grant, or use inheritance money to fund their venture.

Business loans for startups are distributed in two ways; the first are those supplied by financial institutions, while the second are those supplied between two parties called personal loans. Obtaining the right loan for your needs is vital—but what are your options if you have bad credit?

Nearly 40% of small business owners have a personal credit score below 620, which is damning to FICO. Subsequently, having a bad credit score does not correlate to a person’s future ventures. So having bad personal credit won’t stop you from starting your business—but you’ll have to be knowledgeable about your options.

how to get a business loan with bad credit

Getting a Business Loan with Bad Credit

If you don’t know how to get a business loan with bad credit, use the tips below to find your way; alternatively, you can call professionals for additional assistance with business solutions for financial services.

How to Determine Your Credit Score

If you didn’t already know, there are three credit report agencies—Equifax, Experian, and TransUnion. Together, these three institutions are called credit bureaus. Each creates an individual report of a person’s financial history, which then becomes a credit score.

Many factors are considered for every score, from college loans to recurring payments; that said, some events impact your credit more significantly than others. For example, the bankruptcy effect on credit, a seven-year-long punishment, will drown a credit score within that period. Conversely, a used credit balance of 30% is one of the fastest ways to increase a credit score over time.

Parties can request two types of reports from each credit bureau. One is called a hard inquiry—these decrease your credit score and are typically used by financial institutions. The others are called soft inquiries, and because you do these, they do not impact your credit score. There are three ways you can find out your credit score right now:

  • Request an annual report: every person is entitled to a free annual credit report from the three bureaus. These are considered soft inquiries and should be requested yearly to mitigate potential fraud and theft.
  • Order a credit report: you can also pay to review your history outside of the free annual report. The bureaus can send physical copies of the report to your home—or an interested party like a lawyer.
  • Look it up online: many websites exist solely to give a credit score. Credit Karma, Credit Sesame, NerdWallet, CreditWise, and WalletHub are some of the many free options available. Sign up with two and ensure they give you access to all three credit bureaus for the most surveillance.

Types of Loans that You Can Get with a Bad Credit

Business loans for bad credit won’t give you the best rates or contract terms; instead, the options will usually be higher interest rates or stricter terms. As a result, a credit score is less of an influencing factor than you’d think. Consider looking into these types of loans—but don’t sign the contract just yet—you’ll need to verify eligibility first:

business loans for bad credit

  • Bank contracts: some banks will grant personal loans if the relationship is good.
  • Cash advancements: these have limits determined by your credit card balance.
  • A payday loan:use these in small amounts, and for a short term, they are expensive.
  • Peer-to-peer loans: instead of lenders, these loans go through private individuals.
  • Secure personal loans: usually take something as collateral, like a house.
  • Installment loans: borrow some money and pay it off over time without collateral.
  • Home equity loans: use your house’s equity as collateral for a bank loan.
  • Home equity line of credit: use your house’s equity, like a credit card, for interest.
  • Business credit cards: APRs as high as 25%, but fewer restrictions exist.
  • A business line of credit: access cash on an as-needed basis, followed by repayment.
  • Invoice factoring: sell your outstanding invoices for an 85% lump sum cost.
  • Invoice financing: borrows money from collateral costs due to outstanding invoices.
  • Equipment financing: loans can reach up to $1 million and have long-term repay.
  • Microloans:small loans for quick cash, sometimes granted by nonprofits.
  • Merchant advances: financing for high volume sales without a strong credit.

Check Your Eligibility

If it isn’t clear by now, many factors go into your eligibility for loan approval. Bad personal credit can seem like the end of the world, but that’s not the case for business loans. They are only a part of a much broader financial portfolio, which determines your overall loan eligibility. The other aspects that create your financial portfolio include:

  • Information from the current business, including annual costs and revenues
  • Information about your history and experience in business or an industry
  • Cash flow into and out of your bank accounts, credit accounts, and debts
  • Some institutions consider purpose in their choice to lend to others
  • Check all financial institutions before allowing any checks on your credit

Steps Needed to Get a Loan with a Bad Credit

After committing to your venture, you’ll need to figure out how to finance it. Decide to get financing and begin research for options available to you. Gather your eligibility paperwork from the section above to determine your best options. In practice, you may have some of these documents but not others—or you may have financial documents that aren’t listed—regardless, the important thing is to gather all your financial records for consideration.

Next, compare your options for viable new business loans. Competitive interest rates are your best friend in these situations, so taking special care to consider them is crucial. Some financial institutions will judge your eligibility through hard inquiries; these will lower your credit score each time they happen. To achieve a small decrease in your score, be selective about the institutions you allow to have a hard inquiry. After this, pick the best loan for your business needs.

Check Out Our Other Blogs

Having read through how to get a business loan with bad credit—you’re ready to fund your business ventures. InfoCenter is here for every step of your next adventure; for more information about small businesses, finances, cybersecurity, and more—check out our other blogs.

About the Author

Related Articles

News Article

Police Dash & Body Cams: What Are They Used For?

We live in the age of video with security cameras on every corner, and law enforcement has not escaped th... Read More

News Article

How Does a Federal Gun Background Check Work?

When someone purchases a gun through a licensed firearms dealer, a background check is required to mainta... Read More

News Article

What is the Difference Between Jail and Prison?

Do you know the difference between jail vs. prison? For most people, these terms are interchangeable a... Read More

News Article

United States Gun Laws Policy

Gun Control in the United States: an Overview The United States has two types of gun laws. Some are fe... Read More

News Article

In-Depth Look at The Top 5 Reasons for Arrests in the U.S.

Due to the diverse cultures that exist in the different regions of the United States, it can often be cha... Read More

Uncover Hidden Information About Anyone: