Personal and business credit scores both impact your ability to qualify for a business loan. It can be hard to get the financing you want if either one is low, but you can still do it with the right strategy.

Here’s everything you need to know about how to get a business loan with bad credit, including a step-by-step guide to the process and the best types of financing to target.

What Do Lenders Consider as Bad Credit?

The most popular personal credit score among lenders is FICO Score 8, which ranges from 300 to 850. Officially, FICO states that a score from 580 to 669 is “fair,” while 579 and below is “poor.”

However, that’s not necessarily the case in practice. Credit requirements vary between lenders, but they often consider your personal credit score unsatisfactory once it drops below roughly 620 to 640. For context, the average FICO score was 714 in 2021.

Meanwhile, there’s no single business credit score that lenders use significantly more than the rest. Instead, they prioritize several scores that measure different aspects of borrower creditworthiness.

These are the most significant ones to focus on, plus the credit bureau that provides them, their respective credit ranges, and the minimum score you should target for each.

Credit Scores and Bureaus

Credit Score	Credit Bureau	Scoring Range	Target Score
PAYDEX	Dun & Bradstreet (D&B)	0 to 100	80
Intelliscore Plus	Experian	0 to 100	76
Small Business Scoring Service (SBSS)	FICO	0 to 300	180
Business Delinquency Scoring Service (BDSS)	Equifax	101 to 670	585
MasterScore	PayNet	500 to 800	700

How to Get a Business Loan With Bad Credit

Having bad credit makes it harder to get a business loan but not impossible. If you fall short of the credit score targets discussed above, here’s what you should do to improve your chances of qualifying for financing.

Step 1: Get Access to Your Credit Scores and Reports

Almost every credit-related project begins with the same first step: getting access to your credit scores and reports. Even if you know you have bad credit, having your specific credit scores and credit report details is essential for proper planning.

If you want to apply for a small business loan, you’ll need access to your personal and business credit data. Business loan providers often consider your personal scores, especially if your company is new and lacks business credit history.

Fortunately, getting your personal credit data is relatively easy. Each credit bureau has to give consumers free annual access to their credit reports. There are also many credit monitoring services that can give you your FICO scores.

However, it costs more to get a business credit report or score. The privileges given to consumers in the Fair Credit Reporting Act don’t extend to businesses.

The easiest way to access most of the information you need is with Nav’s credit monitoring service. All of their paid subscriptions include the following:

• Personal credit reports and scores from Experian and TransUnion
• Business credit reports and scores from D&B, Experian, and Equifax

If you pay for their fourth tier, which costs $49.99 per month, they’ll also give you access to your SBSS score. That’s the credit score the Small Business Administration (SBA) uses to screen applicants, and there’s no way to get it other than with Nav’s service.

If you’ve never had a business credit account before, you may need to open business credit file with each commercial credit bureau before you can get started.

Step 2: Improve Your Credit Score as Much as Possible

Building credit is generally a long-term project. It’s hard to make meaningful progress toward better personal or business credit when you need to apply for financing immediately.

However, if you have at least a few months before you need a business loan, you can often do something to improve your creditworthiness before then.

For example, paying down your outstanding debt balances and lowering your credit utilization ratio can quickly increase your personal and business credit scores.

However, make sure you understand the short-term and long-term effects of your actions before trying anything. Some steps that would benefit you will eventually cost you points upfront, weakening your credit applications for a few months.

For example, if you need to apply for a business loan in the next 60 days, it’s probably not a good idea to take out an installment loan to try and improve your personal payment history.

Applying for a new loan triggers a hard inquiry and increases your amounts owed, which will hurt your score. In addition, your time horizon is too short to benefit from making timely payments on the credit account.

Step 3: Strengthen Your Application in Other Ways

Your personal and business credit scores are some of the most significant factors lenders consider when you apply for a business loan, but they’re not the only ones.

If you know your credit scores are below average, try to make up for it by improving your application in other ways. Here are some tactics to consider:

• Provide collateral: Creditors are reluctant to lend to businesses with bad credit because they’re worried you’ll default on the account and cost them money. Providing collateral that they can seize to recoup any potential losses goes a long way toward easing their concerns.
• Get a cosigner: A cosigner promises they’ll pay your debt if you ever default. If you can convince someone with good credit to take on that responsibility for you, it shifts the risk of default from your lender to the cosigner. That makes it more likely that the lender will be willing to work with you.
• Improve company finances: When you apply for a business loan, lenders consider the strength of your company’s finances in addition to your credit scores. High annual revenues or a significant cash balance can reduce the risk of lending to you.

Underwriting criteria can vary significantly between creditors. If you need ways to boost the strength of your application other than raising your credit score, look for creditors with additional qualification requirements that may be easier for you to meet.

Step 4: Target Accessible Financing Options

Business loans are hard to qualify for in general, but some of them are significantly more accessible than others. Consider applying for accounts or lenders with less rigorous requirements.

Traditional financial institutions typically have the strictest underwriting criteria. For example, you must have two years in business and $100,000 in annual revenue to get a business loan from Bank of America.

Unfortunately, Bank of America doesn’t publish its credit requirements, but banks and credit unions generally expect good personal or business credit scores. That typically means having a FICO score of at least 620 to 640.

Conversely, online lenders typically have noticeably lower eligibility criteria. For example, OnDeck only requires one year in business, $100,000 in annual revenue, and a 600 personal credit score.

Of course, the catch is that more accessible financing options have higher interest rates and fees. To use the same examples from above, Bank of America’s business loans start at 5.25% in 2022, while OnDeck’s start at 35% APR.

Step 5: Apply to Multiple Lenders

When you need an installment account like a business loan, it’s best to shop around with multiple lenders. Not only will that improve your chances of qualifying, but it will also help you find the lowest rate and the best terms.

Some business owners are afraid to rate shop because they think it might hurt their credit. It’s typically true that each time you apply for a new account, lenders check your personal credit score and add a hard inquiry to your credit report.

While too many of those can hurt your score, there’s an exception for rate shopping. As long as you keep your applications within a two-week window, only the first one will show up on your personal credit report.

Types of Loans Available for Businesses With Bad Credit

Avoiding traditional financial institutions and applying to less strict lenders can make it easier to qualify for a bad credit business loan. Fortunately, there are many alternative financing options available.

If you have poor credit scores and need financing too soon to raise them significantly in the time available, here are some types of loans you should consider.

SBA Loans

The SBA is widely considered the premier source of business financing. Though it doesn’t originate loans directly, its programs help businesses get loans with the highest principal balance, lowest interest rate, and longest repayment term possible.

You might think that means they’re unavailable to businesses with bad credit, and it’s true that many SBA loans can be hard to get. However, some may be accessible to business owners without good credit scores.

The qualification requirements you need to meet will vary by lender, but the SBA states that even those with bad credit can qualify for startup business funding.

Invoice Factoring

If your business has outstanding invoices, invoice factoring could be a viable alternative to a business loan for you. While it isn’t a term loan, invoice factoring can generate working capital regardless of your credit score.

It involves selling your invoices to an invoice financing company. Unfortunately, like many alternative forms of funding, it can be expensive. You typically have to sell your invoices at a discount and may incur additional fees.

Business Credit Cards

Credit cards generally aren’t a viable long-term financing option since they have high interest rates after the initial grace period. However, they have many other benefits, including the following:

• Generating working capital and smoothing out cash flow
• Improving your credit scores for a future business loan
• Separating your personal and business spending
• Earning cash back rewards for eligible expenses

Fortunately, countless credit cards are on the market, with options available for every credit score range. Consider going after a secured business credit card like the Wells Fargo Business Secured credit card.

Merchant Cash Advances

A merchant cash advance can provide businesses with a lump sum just like a business loan. However, they’re much easier to qualify for with bad credit. Roughly 84% of applications received approval in 2020.

Unfortunately, merchant cash advances are also one of the most expensive forms of alternative financing. They typically charge a fee that ranges from 20% to 50% of the original amount advanced.

In addition, you usually have to repay them by signing away a portion of your debit and credit sales or by allowing automatic, fixed withdrawals from your bank account.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms connect you with investors looking to diversify their portfolios by becoming lenders. Because you’re dealing with individuals instead of financial institutions, you have a better chance of getting funding with bad credit.

As you’d expect, these personal loans are more expensive than traditional business financing options. For example, a Prosper personal loan costs up to 35.99% APR with a 5% origination fee.

Equipment Financing

If your goal is to use your business loan to purchase equipment for your company, an equipment loan is a great option to consider. They typically provide the exact amount of funds necessary to fund your intended purchase and use the asset as collateral.

Because equipment loans let lenders seize your asset if you ever default, they’re easier to get with bad credit. You can get one from a traditional lender or an online lender, so make sure you shop around for the best option.

Business Lines of Credit

Business lines of credit are a type of revolving debt similar to credit cards. However, their credit limits are usually higher, and their interest rates are typically lower, though they don’t have an interest-free grace period after you draw against them.

If you have bad credit, you may be able to qualify for a business line of credit easier than a traditional business loan. They’re a popular product to offer among online lenders.

Microloans

Microloans are one of the most accessible SBA loan programs to businesses with bad credit. They’re significantly smaller than the average business loan, with principal balances averaging $13,000.

Because they require a lower investment from the lender, they’re inherently less risky, and you might be able to qualify for one even with bad credit.

How Can I Get an Unsecured Business Loan With Bad Credit?

Providing collateral is one of the best ways to qualify for a business loan without a good credit score. Because a lender can always seize your asset if you default, they’re more likely to overlook your bad credit score.

However, not every small business owner has access to an asset that lenders will accept as collateral. Others may be unwilling to risk defaulting and losing their valuables.

If you have a low credit score but can’t or don’t want to provide collateral, you’ll need to use other tactics to improve your chances of getting a bad credit loan. Some options include:

• Using a cosigner with good credit
• Shopping around with multiple lenders
• Improving your financial position
• Applying for alternative lender accounts like merchant cash advances
• Focusing on online lenders with lower qualification requirements

Keep in mind that it’s possible to get a business loan with bad credit, but the odds are against you. Your chances of approval will likely drop even further if you decide to go after an unsecured loan.

What Is the Minimum Credit Score for a Small Business Loan?

Unfortunately, there’s no universal minimum credit score for a small business loan. 

Lender qualification requirements vary significantly, and they may also consider different credit scores altogether.

That said, here are some targets you can aim for with the personal and business credit scores that are most popular among lenders:

• Personal FICO Score 8: 640
• PAYDEX: 80
• Experian Intelliscore Plus: 76
• FICO SBSS: 180
• Equifax BDSS: 585
• PayNet MasterScore: 700

If you fall short of these targets, it can be hard to qualify for affordable financing. Consider waiting to apply until you increase your credit scores, as many more options will be available, and you’ll likely get significantly more favorable terms.

If you need a way to build your credit scores, try using a credit builder loan like CreditStrong’s. We offer the only one on the market for businesses. You can use it to report up to 25 months of payment history to the commercial credit bureaus.

Because we use your proceeds as collateral, we don’t have to check your credit score when you apply. 

All you need to qualify is three months in business, an Employer Identification Number (EIN), be located in the U.S., and be a legal entity status other than a sole proprietorship.

To top it off, you can cancel anytime with no penalty. Give it a try today!

CreditStrong for Business is the only 0% interest business credit builder in the nation

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