How to Get a Business Loan with Bad Credit in 2023
Your personal credit score is one of the most important factors lenders look at when deciding whether to give you a business loan. A low credit score can make it difficult to get approved for a loan and can lead to high-interest rates and other penalties. In this article, we’ll discuss how to get a business loan with bad credit in 2023. Let’s get started!
What Do Lenders Consider Bad Credit?
A bad credit score is typically considered a credit score that is below 580. A bad credit score can make it difficult to get approved for a loan and can lead to high-interest rates and other penalties.
Bad credit is often the result of missed payments, bankruptcy, or maxing out credit cards. To improve your score, you need to be proactive and make sure all your payments are on time and that you’re not overextending yourself.
What is the Minimum Credit Score for a Small Business Loan?
The minimum personal credit score for a small business loan is typically 500. However, the minimum score may be higher or lower depending on the lender. To increase your chances of being approved for a loan, try to maintain a good credit score and make all your payments on time. Building your business credit score can also help you get approved for a loan with better terms.
Is It Possible to Get a Loan with No Credit Check?
It is possible to get a loan with no credit check. However, it is important to note that most lenders will require some form of credit check before approving business financing. This is because lenders want to make sure you are a low-risk borrower and have a good chance of repaying the loan. If you have a bad credit score, you may be able to get approved for a loan with a higher interest rate or through a more lenient lender.
Types of Business Loans Available to Borrowers with Poor Credit
If you have poor credit, there are still several bad credit business loan options out there. Let’s take a look at the various types of loans available to you…
1. SBA Loan
The Small Business Administration (SBA) loans are government-backed loans that are available to businesses with bad credit. Although the interest rates can be higher than what you would get from a private lender, SBA loans are often more lenient and may require collateral.
2. Merchant Cash Advances
A merchant cash advance (MCA) is a type of loan where the lender advances you funds in exchange for a percentage of your future sales. MCAs are often more lenient than traditional loans and can be approved quickly.
3. Business Lines of Credit
A line of credit is a type of loan that allows you to draw funds as needed up to a certain limit. Lines of credit can be used for working capital and usually have more flexible payment terms than other types of loans.
4. Equipment Loan
An equipment loan allows you to finance the purchase of business equipment. Equipment loans typically have lower interest rates than other types of financing and can help you get the equipment you need without having to use a lot of capital.
Microloans are small loans that are typically offered to entrepreneurs who have a hard time getting approved for other types of financing. Microloans can help you get the funds you need to start or grow your business.
6. Peer-To-Peer Lending
With peer-to-peer (P2P) lending, you can borrow money from a group of individual investors rather than a traditional lender. P2P loans can be a great option for those with bad credit as they often have more lenient terms.
7. Guarantor Loans
These are loans where a close friend or family member acts as the guarantor, meaning they are liable for the loan if you default. Guarantor loans can be a great option if you have a poor credit score, but it is important to make sure your guarantor understands the risks involved.
8. Invoice Financing or Factoring
Invoice financing or factoring allows you to borrow money based on the value of outstanding invoices. This type of financing can be a great option if you need money quickly and have invoices that are due soon.
9. Business Credit Cards
Business credit cards can be a great option if you have bad credit, as they often have lower interest rates than other types of financing. However, paying your balance in full every month is important to avoid high interest charges.
Crowdfunding is an increasingly popular way for small businesses to raise money. With crowdfunding, you can get funds from a large group of people who are interested in supporting your business.
How to Get a Small Business Loan With Bad Credit
Minimum credit score requirements vary from lender to lender, but there are still several steps you can take to increase your chances of getting approved for a loan with bad credit. Here are five tips for getting a small business loan with bad credit in 2023:
- Improve Your Credit Score. The first step is to take steps to improve your credit score, such as paying down any outstanding debt and checking your credit report for errors.
- Show Evidence of Financial Responsibility. Lenders want to know that you are responsible for your finances, so it’s important to provide evidence of your financial responsibility such as bank statements, tax returns, and balance sheets.
- Find the Right Lender. It’s important to find a lender that is willing to work with you, even if you have bad credit. Research different lenders and compare their terms and fees to find one that meets your needs.
- Provide Collateral. Some lenders may require collateral for a loan, such as equipment, real estate, or inventory. Providing collateral can help increase your chances of getting approved for a loan.
- Seek Alternative Financing Options. If you are unable to get a loan from a traditional lender, consider alternative financing options such as microloans, peer-to-peer lending, crowdfunding, and more.
Bad Credit Business Loans for Startups
Online lenders are typically the best option for startups looking to get a business loan with bad credit. Online lenders often have more lenient terms and less stringent requirements than traditional banks, making them a great option for startups. Let’s take a look at some options for getting business financing with bad credit:
1. OnDeck for Short-Term Loans
With OnDeck, you can get a term loan from $5,000 to $250,000 with repayment terms of up to 24 months. You’ll also be able to apply for more funding once you’ve paid at least half of the balance down.
2. Bluevine for Invoice Factoring or Financing
With a company like Bluevine, which has partnered with FundThrough to offer invoice factoring, you’re able to free up cash currently tied up in unpaid invoices. To qualify, you’ll need about $100,000 in annual revenue, have been in business for at least three months, and have a credit score of 530+.
3. Lendio for a Business Line of Credit
You can get a business line of credit of between $1,000 and $500,000 in as little as one day using Lendio. However, the interest is between 8%-60%, which is higher than traditional business loans.
4. CurrencyFinance for Equipment loans
CurrencyFinance offers loans to qualified borrowers of as much as $500,000 and up to 72-month repayment terms. To have the most options with CurrencyFinance’s offerings, you should have a 625 or higher FICO score and 2+ years of time in business.
5. Accion for Microloans
Accion is a non-profit organization that offers microloans of up to $100,000 with interest rates as low as 5.99%. What’s great about Accion is that you can get a quote without impacting your credit score.
6. Credibly for Working Capital Loans
If you have poor credit and need money quickly to cover day-to-day expenses, then a working capital loan through Credibly might be a great option for you. However, to qualify, you’ll need to put up collateral of up to 90% of the loan amount.
7. Payability for Merchant Cash Advance
With Payability, you can receive up to $250,000 in funding the same day you’re approved. They work with businesses from 180 countries in 38 currencies. What’s great is there’s no credit check.
8. Rapid Finance for Business Loans
Getting a small business loan through Rapid Finance is a simple, straightforward process and you can apply right from their website. Their loan terms range from three to sixty months and you can receive funds within hours of being approved.
9. American Express Plum Business Credit Card
If you’re looking for something less traditional, you may want to consider a business credit card like the American Express Plum Business Credit Card. This card offers the ability to carry your balance for up to 60 days with no interest, no preset spending limit, and more.
10. Personal Loans
Personal loans can also be a great option for business owners with bad credit. You can use them to fund your business, as long as you are using the money for business-related expenses and are responsible for making the payments.
Don’t Let Bad Credit Stop You From Obtaining Small Business Loans
It’s true that bad credit can make getting a business loan more difficult, but it doesn’t mean it’s impossible. With some creativity and research, you can find options that will work for your business. Whether it’s through a traditional lender or an alternative source, you can get the funds you need to grow your business. Don’t let bad credit stop you from achieving your dreams!