Business Loans For Startups With Bad Credit in 2022

Business Loans For Startups With Bad Credit in 2022

Business Loans For Startups With Bad Credit in 2022

Finding a startup business loan can be challenging. And if your credit isn’t great, it will be that much harder. Many lenders that make small business loans check personal credit, and if you don’t meet the required minimum credit scores, trying to find a lender who will let you borrow money for a new business with bad credit can be a frustrating process.

Don’t give up yet, though. There are funding options worth exploring.

The Guaranteed Approval Myth

If you have bad credit and you’re searching for financing, ads for “guaranteed approval” and “no credit check loans” can be very appealing. Could a guaranteed business loan be the answer to all of your problems?

Not so fast. You should exercise extreme caution before you apply for any financing options that sound too good to be true.

Here’s the truth. When it comes to financing, there’s no such thing as guaranteed approval for bad credit.

Before you start to feel panicked, poor personal or business credit scores don’t mean it will be impossible to qualify for financing for your business. However, any promise of guaranteed approval should put you on guard.

At best, guaranteed approval promises may be a sign that you’re dealing with a predatory lender. At worst, the advertising you’re seeing might be a scam.

Can You Get a Startup Business Loan if Your Personal Credit is Bad?

Now that we’ve got those warnings out of the way, let me just say: it is absolutely possible to find working capital loans and other financing options if your startup has bad credit. Some small business lenders don’t check personal credit. Instead, they will rely on other factors, such as business revenues or in the case of crowdfunding, a compelling business idea or need.

What Credit Score is Needed to Get a Startup Business Loan?

While traditional banks typically require high credit scores of 640 or more, there are other types of loans that have less stringent requirements.

You can find some business loans that require scores of 500-600. Some look at other qualifications to determine your annual percentage rate, including annual revenues. Some don’t even have the two-year requirement for how long you must have been in business that banks do.

What is Considered a Bad Credit Score?

If you’ve never really paid attention to your credit scores, you might not even be aware that you have bad credit. Each lender decides for itself what range for what it deems Excellent, Good, Fair and Poor. However, there are some typical guidelines. For example, the FICO Score ranges from 300 to 850. Generally, anything in the 500s will be considered Poor.

Most small business lenders prefer credit scores of at least 650 and some have minimum credit score requirements of 680 or above. However, some of the lenders we discuss in this article don’t check personal credit, or have more lenient credit requirements.

Do You Need Collateral to Get a Startup Business Loan?

Some small business loans require collateral, regardless of credit. If you run a new business or don’t have great credit, you can almost be certain that any lender will prefer you to have collateral.

What can serve as collateral for a business loan? Things like equipment and real estate are a few examples. But invoices and receivables can also serve as collateral.

What can serve as collateral for a business loan? Things like equipment and real estate are a few examples. Invoices and receivables can also serve as collateral. Personal home equity may able be used as collateral for some loans.

Types of Business Loans for Startups with Bad Credit

Although guaranteed approval for bad credit isn’t a real thing, there are lenders that work with small business owners with bad personal credit scores or weak business credit history. Whether your personal credit is in bad shape or your business credit rating leaves a bit to be desired, there may still be viable options available to borrow money for your business so you can free up cash flow.

Before we break down some of the options available, keep in mind that bad credit financing represents a higher risk to the lender. As such, these financing options often feature higher interest rates and less attractive terms than you might expect with traditional business financing. The same is true for a small business startup loan. Lenders prefer a track record of at least a year or two in business making a startup loan problematic for a loan underwriter.

Here are several financing options you might want to consider if you need to borrow money with bad credit scores.

1. Online Business Lenders

With poor credit, your chances of walking into traditional banks or credit unions and convincing someone to approve your loan application are pretty slim. A short-term loan from an alternative lender online who might be willing to work with your situation if you have less-than-perfect credit may be much easier to get than traditional loans. 

A small business line of credit or loan from an online lender could be a much more realistic option—and has become the first-choice financing option for many businesses today.

In spite of a poor credit rating, your business may have other things going for it that would make lenders willing to take a chance on loaning your company money. If your business has other strengths, like steady accounts receivable or stable monthly revenue, your odds of qualifying for funding from an online lender may improve.

Keep in mind, subprime loan options from online lenders may come at a cost—including higher APRs, costly fees, shorter (or more frequent) payback timetables, collateral, and personal guarantees. Plus, even if the lender’s credit requirements are more lenient, you’ll still likely need to prove your ability to repay the loan.

2. Invoice Factoring

Invoice factoring or invoice financing is another option available to businesses that have a weaker credit profile. Factors (the companies that provide this type of funding) are more interested in the credit profile of your customers than yours, so they will often work with businesses that have a less-than-stellar credit history. There are many online factoring companies that make it easier and more accessible to factor invoices than it was in the past.

Factoring isn’t really a loan. In a nutshell, you are selling your unpaid invoices to a third party (a factor) at a discount. The factor will pay you a percentage (usually around 85%) of the agreed-upon amount today and will pay the balance, minus a percentage, once your customer has paid the invoice.

There are some factors that will allow you to continue to collect from your customers, but you should expect that the factor will insist on handling that. This might not be a small business loan in the traditional sense, but it is a way to leverage the value of your accounts receivable today rather than waiting for your customers to pay their invoices. This is a very popular way to finance businesses in the manufacturing, construction and textile industries, for example.

3. Merchant Cash Advance

Another option to consider is a merchant cash advance. Rather than a loan, this is an advance on future sales, and looks at your revenues, not your credit scores, to qualify you.

4. Microloans

New businesses can also consider microloans. These are often made by non-profit lenders – CDFIs – who work with underserved borrowers and they may be more flexible with credit standards. There is also an SBA microloan program, though these loans are made by individual lenders and not the US Small Business Administration. In addition, options like Kiva that might be easier to qualify for.

Read: CDFI Fund and CDFIs: Everything Small Business Owners Need to Know

5. Equipment Financing

Another of your funding options is equipment financing, which can be helpful if you need to purchase equipment like computers, vehicles, or machinery for your business. Because the equipment you’re buying acts as your collateral, you may be able to get great rates even with lower credit scores, though requirements do vary.

6. Small Business Credit Cards

Small business credit cards generally don’t require extensive time in business or storing business revenues. However, most do check personal credit as you’ll typically have to sign a personal guarantee to open an account. For that reason there aren’t a lot of business credit cards for bad credit. Most issuers require a minimum personal credit score of 650 to 680 or higher. 

One option: a secured business credit card. A secured credit card requires a security deposit but typically features more lenient approval requirements in exchange. Provided you manage the account well, a secured business credit card could help you build better credit for the future, making it possible to apply for more traditional business funding down the road.

While the rate on a secured business card may be higher, the good news is you can avoid credit card interest altogether as long as you pay your balance in full each month by the statement due date. This is a credit-building strategy you can use with all business credit cards.

7. Crowdfunding

If you can’t qualify for traditional or alternative, or first-time bank loans or you’re unwilling to pay the higher financing costs associated with such loans, crowdfunding might offer you a non-traditional way to access the business capital you need.

There are two primary types of crowdfunding options for businesses:

Equity crowdfunding has several flavors, but generally involves offering shares to in your company to investors in exchange for capital. Reward crowdfunding involves reaching out to your customer base (or prospective customer base) directly and convincing them to make small investments in your business. In exchange, you will typically give these customers a reward, such as the opportunity to be one of the first to receive your company’s new product or service once it launches. Debt crowdfunding provides a loan you will repay.

While online platforms like Kickstarter and Indiegogo are the most well-known, there are dozens of crowdfunding platforms that can help you to launch and manage a crowdfunding campaign for your business. 

Read: This 0% Interest Small Business Loan Just Got Better

On the negative side, crowdfunding doesn’t always work and it’s far from a guaranteed source of financing. Many business owners who launch crowdfunding campaigns fail to meet their funding goals. With some crowdfunding platforms, if you don’t reach your funding goal you may forfeit the money that did come in for your campaign.

But when crowdfunding does work, it can be a big financial win for your business.

Alternatives for Bad Credit Borrowers

Here are a few other options to consider for finding the small business financing you need:

Friends and Family 

This is one of the most popular types of startup funding, and good credit is not required. If you are going to go this route and have identified people who will support your business, consider asking them to back a crowdfunding campaign. You may be able to attract other lenders or investors as well.

Retirement Funds

You may be able to use your retirement funds to seed your startup, either by borrowing against a 401(k), cashing in part of your IRA or 401(k) or rolling funds into a ROBS account which then funds the business. All of these options are risky and you should not consider them without first getting professional to determine the potential tax implications.

Personal Loans

Another option to consider if it’s your business credit that isn’t great (and your personal credit scores are solid) is a personal loan. You can take out a personal loan and use it for your business, though know that you won’t build business credit this way.

Small Business Grants

Another way to get capital that doesn’t have to be paid back is with small business grants. While these can be tough to get (they often have lots of competition), you may be able to get $1,000 to $50,000 or more you can put toward growing your business.


You may need to start small, and find a market for what you’re selling, then use revenues from those sales to expand your business. To make this successful, you’ll want to take the most efficient route possible. Get free help from your SBA Resource partners— SCORE, Small Business Development Centers, and Women’s Business Centers— to give your business the best chance of success. Find local SBA resource partners here.

How to Choose the Right Financing Option for Your Startup

So many options…so little time. How can you narrow down your options to the financing that’s the best fit?

Start by knowing what you qualify for. If your business is less than two years old and you don’t have good credit, you won’t likely get traditional bank loans or SBA loans, for example.

How’s your credit? That will also determine what you’re eligible for.

Do a little research to see what sort of rates you could get, then decide if that interest rate is worth paying. What do you plan to use the loan for? How quickly can it see a return on investment?

What Does it Take to Qualify for a Startup Business Loan?

Whereas SBA loans and bank loans often look for a minimum credit score—whether that’s a FICO score or another score from one of the credit bureaus— some lenders may consider other criteria, such as revenues.

It’s a good idea to read the eligibility requirements, terms, conditions, and any other fine print before you fill out funding applications for your business. Make sure you understand the interest rate, the repayment term, whether or not they are going to want collateral, or if this will otherwise be a secured loan. This is a good rule of thumb no matter what the condition of your credit may be. More about start up business loans here. 

Each loan program is different in what it considers to determine creditworthiness, but lenders that cater to businesses that have low credit scores often look beyond credit score requirements to things like annual revenue, personal finances, and personal assets.

With bad credit business loans, as with any business loans, you may be asked to provide a business plan that demonstrates how you plan to grow your business using the loan amount you’ve requested.

How to Get a Startup Business Loan with Bad Credit

Review the application process before applying for small business financing so you have everything you need and can streamline the process.

You’ll be asked questions about your business, including:

  • How long it’s been in operation
  • Its location
  • Its industry
  • Annual revenues

You may also be asked for personal information like your Social Security number and contact information. You’ll also need to provide your business bank account details so funds can be deposited into your account once your application is approved.

What to Consider When Applying for a Startup Business Loan with Bad Credit

Borrowing money when you have bad credit is a highly-individualized decision. Because the cost of financing when you don’t qualify for low-interest loans can be exorbitant. Only you can determine whether that high cost is worthwhile.

If, for example, you need money now but know you can repay it in six months, a high-interest loan may not be a big deal, since you can pay it off before you’ve accrued too much in interest. 

If the cost of financing is more than you can stomach, consider building your credit and applying for a loan later when your scores are improved.

How to Build Business Credit to Get a Startup Business Loan

There’s no question that good credit scores – both business and personal – can help you to qualify for better business financing options. Good credit not only opens doors when it comes to financing, but it can also help you to secure loans and business credit cards at a lower cost.

Looking to build your business credit? If your business credit isn’t where it needs to be, here’s a helpful guide you can use to improve your business credit in five steps.

Remember, it’s also wise to keep a close eye on both your personal and business credit reports and scores. You can monitor your business and personal credit in one spot by setting up a free account with Nav.

Good business credit is a crucial key to help you unlock better financing options for your business to get the working capital you need. Lenders will care about the condition of your credit, so you should care about it as well.

This article was originally written on May 16, 2019 and updated on July 5, 2022.

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25 responses to “Business Loans For Startups With Bad Credit in 2022

  1. Cheers
    Very good day I hope you are well

    Register a company in Florida called Atlantic1000 Financial Group which is a corporation dedicated to acquiring banks and financial companies outside the United States for potential.

    Many fascinating ideas and an excellent business plan, I just need a loan to start this fabulous project.

    I would like to know if there is any possibility of obtaining a loan with you to start this project.

    Thank you very much in advance, I await your prompt reply.

    1. I’m trying to restart my business 40000 start up will purchase and get me started enough to continue my business with no issues my personal credit got in the way due to medial issues and covid 19 issues / divorce. Who can help me maverik?????

  2. I am still trying to find a start-up business loan. I have bad to OK credit. Can you help me? The only reason that I am asking is that I have looked everywhere, and I have noticed a couple of things. First of all, companies that say they can help me, really can’t. For instance, a number of the companies that you have listed that say they have start-up business loans, really don’t offer them. Can you really help me or our just going to give the standard line? The reason why this email sounds like this is that I am just very frustrated by sites like this that they can help, but really can’t. I believe in truth in advertising.

  3. I am currently employed in a corporate salon as the salon lead. We are closed because of current events. I may have the opportunity to be the owner of this salon. But won’t have a definitive answer until I have clarity as whether or not the corporation can reopen and/or is the current property manager can break their lease. There are 12 employees, 14 stations, and a gross annual revenue of approximately $500,000.00.
    Should this work in our favor I will need to apply for funding to cover start up expenses. Can or should I start the process of securing funding this soon?

  4. I have bad credit from past alot to do with identy theft. I’ve been in the landscaping business with another guy who wonts to sell out his part of a stablish business. I’m trying to get the money to buy him out. Already have 3 mother’s of work lined out pluss I have a 16000 thousdad dollar job starting Monday. I need 25000 thousand I need it soon. Can u help me

    1. Michael,

      If you have a Nav account (it’s free), I recommend you reach out to our credit and lending team for assistance. You can reach them through your account or by calling 844-636-2445.

  5. I am interested in purchasing a Chicken farm and don’t have good credit and I was wondering if yall could help.

    1. I have a business basically all the equipment to run it except for a few pieces. I’ve depleted my savings and don’t have stellar credit. I’m about finish paying for the building. Is there any help out there for me?

      1. I have a business basically all the equipment to run it except for a few pieces.I’ve depleted my savings and don’t have stellar credit. I’m about finish paying for the building,is there any help out there for me.