Can I Get a Small Business Loan With Bad Credit? Here's What You Need to Know
Estimated Reading Time
Approximate reading time: 7 minutes
Key Takeaways
- It’s possible to get a small business loan with bad credit, but your options are limited and you may need to pay a premium for the funds.
- Investigating options such as SBA microloans and online lenders improves your odds.
- Improving your credit score and strengthening your business model can increase your chances.
Table of Contents
- What’s Bad Credit?
- Is It Possible to Get a Small Business Loan With Bad Credit?
- Types of Loans You Can Get
- What You Can Expect with Bad Credit Loans
- Understanding SBA Minimum Credit Scores and Where to Find Bad Credit Lines of Credit
- How to Increase Your Odds
- Compare Loan Types: A Quick Guide
- Conclusion
What’s Bad Credit?
But before we jump into the kinds of loans available to people with poor credit, it’s worth explaining what bad credit actually means. A personal FICO credit score below 670 out of a possible 850 is considered “bad credit” by most financial institutions in the country. Here’s an article on credit scores.
Pretty challenging, if you’re a brand-new business and lenders care more about your personal credit than your business credit. But the good news is that a number of business loans with terms aimed at bad-credit applicants also have minimum credit requirements that fall as low as 500. Find more information here.
So, don't lose hope yet! Learn how to build your credit here.
Is It Possible to Get a Small Business Loan With Bad Credit?
Ah, the million-dollar question — or, as the case may be, the $50,000 question, if you’re in the market for an SBA microloan. Options are available for aspiring business owners with a less-than-rosy credit record, but they tend to be limited. The biggest obstacle they encounter is higher borrowing costs – loans are more expensive on account of perceived risks by lenders. Find out more about loans for bad credit here. Learn more about how to get a loan with bad credit Read More.
Types of Loans You Can Get
For borrowers with a red flag on their credit report, it’s crucial to get a sense of the types of loans for which you might be eligible. Here are the most relevant options:
- SBA Microloans
The U.S. Small Business Administration (SBA) backs microloans, which are designed for small and underserved businesses and come with loan amounts of up to $50,000 though the average is around $13,000. While there might not be a minimum threshold to qualify for these microloans, lenders frequently check credit scores and request collateral or a personal guarantee. Read even more in-depth considerations there. Here’s a primer on SBA loans. - It’s a beautiful thing about the SBA microloan: the qualifications sometimes skew in favor of business owners who can’t qualify for traditional SBA loans. Just keep in mind that you apply through an SBA-approved intermediary lender, so be sure to find one to partner with. Learn more about SBA Microloans here.
- Other Bad Credit Loan Alternatives
Online Lenders: There is a veritable slew of online lenders that offer business loans to people with poor credit, to the point that your score can be as low as 500. Just know that interest rates can skyrocket with these options. Learn more about online lenders here. Here is our list of the best online lenders to compare. - Merchant Cash Advances and Invoice Financing: A good fit if you’re not looking for rigorous credit score checks. Those come with a lot of overhead, naturally, but for short-term support, they can be lifesavers. Fast ways to get financing can be found in this guide.
- Secured Loans: Offering collateral can turn the tide in your favor despite less-than-ideal credit. It’s a big push, but it might be worth it for a shot at qualifying.
What You Can Expect With Bad Credit Loans
If you’re going down this road, bear in mind a few common aspects you can expect from many bad credit loans:
- Higher Interest Rates: A requirement most lenders require because risk is higher, in their minds. Read more about interest rates here.
- Less Time to Repay: Payback is generally shorter if you receive a loan with bad credit– possibly a consideration for you in your future financial planning.
- Collateral or Personal Guarantee: A lender often requires a safety net, a means to secure something in the event things go sour.
- Higher Interest Rates on Less: You can only borrow so much as your credit gets worse—and it’s not unreasonable for lenders to guard against higher risk.
Understanding SBA Minimum Credit Scores and Where to Find Bad Credit Lines of Credit
Below is what's known as a summary of default minimum SBA loan credit scores with the 7(a), real estate, and 504 loan programs: NOTE: Minimum credit scores in general you'll be dealing with are around 620-650. More on SBA loan credit scores here.
But if you find yourself falling short of that threshold, fear not; the SBA microloan shines a beacon with no defined score requirement. However, beware that intermediary lenders may have their own score requirements. Find SBA loan requirements here. Read more about SBA loan options here.
How to Increase Your Odds
It can be scary to navigate the obstacle course of loans for bad credit, but there are steps you can take to improve your chances:
- Toughen Your Business Plan: Layout a sturdy blueprint that details how you plan to grow in the near future, capturing the confidence of lenders.
- Build Your Collateral: Expanding your range of available collateral could be a compelling reason to get approved for a loan.
- Try Smaller Loans: Build a creditworthy history by obtaining microloans Read about microloans here.
- Focus on Boosting Your Credit Score: Slowly improving your credit opens up more borrowing options in the future. Read about how to improve credit here.
Compare Loan Types: A Quick Guide
| Loan Type | Credit Score Required | Loan Amount Range | Typical APR range | Typical Use of Loan | Collateral Required | Available to Bad Credit? |
|---|---|---|---|---|---|---|
| SBA Microloan | Not specified (it varies) | $50,000 | Start-up, expansion | Frequently | Yes | |
| SBA 7(a), 504, other SBA | 620–650+ | $5M+ | A variety | Frequently | Not impossible | |
| Online Lender | 500+ | Different | Working capital | Sometimes | Yes | |
| Merchant Cash Advance | No minimum | Varies | Short-term needs | Yes | Yes | |
| Bank Loan | 670+ | High | Diverse | Yes | Probably not |
Conclusion
And that is it; yes—you are able to get a small business loan with bad credit. It’s just a question of lining yourself up with the right path to navigate, such as the SBA microloans or veering toward bad credit targeting online lenders. It may require more interest or collateral, but with a methodical approach to improving your business’s financial fitness you can get on the road to a successful loan. For those few willing to go the extra mile — through fine tuning their business plans and “going back to black” in terms of their credit profiles — even bigger doors of opportunity may soon swing open. Find more sources to learn more about bad credit loans. Read broader insights here. Bring on the money storm, brave entrepreneurs, and be the opportunity seeker to get the funding you need to move your business out of dream mode and into reality.
