Getting a business loan with bad credit is difficult because of lenders’ qualifying criteria. They find it risky to lend money to people with poor repayment capability. But, this isn’t impossible. As a business owner with bad credit, you have to work a a bit smarter than business owners who have good credit to get a business loan.

To get a business loan with bad credit, you should plan out properly and look for the right loan options. It’s not easy, so you should seek help from professionals who can guide you through the right path and help you get a business loan with bad credit but without any hassle. 

Before we discuss the ways to get a business loan, you should know what a credit score is. You should know what lenders consider bad credit as. 

What is a bad credit score?

A credit score that ranges from 300 to 629 is typically considered a bad credit score by most of the credit scoring models. According to such models, credit scores ranging from 630 to 689 are generally considered fair credit.


Many individual small-business lenders have varying guidelines for a bad credit score. They increase the range of bad credit scores and allow business owners to apply for a loan.  


Usually, lenders focus on personal credit scores but some of them also use the business credit score (if you have been in the business for at least one year) to evaluate the loan application. 


Tips to get a business loan with bad credit 


You should understand your credit profile

You might have done this already. But, the thing is it’s not a one-time process. To improve your credit score, it’s always beneficial to know exactly where you stand. You shouldn’t do anything based on assumptions. 


You are allowed one free credit report per year. You should get it and look into both your personal and business credit score if applicable. If you have requested your free credit report, you should ask for supplementary scores to get an idea of what your current standing is. 


You may be asked to provide collateral 

As already said, lenders don’t lend money to people with bad credit because they find it risky. Therefore, you should try to mitigate this risk for the lender. And for this, you will be asked to offer collateral against your loan. 


This might be risky for you, especially if your business takes a downward turn for a longer period. So, you should provide collateral to the lender but only to an extent that you are comfortable losing if things go bad and you need to pay off debts. 


You should add a co-signer 

Adding a co-signer to the loan application means another person is willing to take on partial responsibility for the loan along with you. A co-signer doesn’t have to be a stable partner in your business. 


You should find a co-signer with good credit to assure the lender of his ability to cover payments if you fail to do so. This mitigates the risk of the lender and increases the chance of loan approval. 


You should review your eligibility requirements 

A credit score is important but other factors are important as well in the loan application. A lender will check your long-term business history and other details before approving or disapproving your loan application. Chances are that the lender might understand your reasons for bad credit. 


As every financing option has different eligibility requirements, you should understand them properly and find a lender that fits your needs. You should look for a lender that focuses on the strength of your business. 


You should apply for a lower amount of funding 

With bad credit, asking for the right amount of funding might increase your chances of getting a loan. You should opt for a lower amount of funding as it will make it easier for you to repay. You won’t trap yourself with more debt than necessary. 


Before deciding on the loan amount, you should check your business plan, profit & loss statement, balance sheet, and financial forecasts. You should find areas where you can minimize expenses and bring in additional revenue. 


Business loan options with bad credit 


Apply for a business credit card 

If you are not getting a business loan because of bad credit, you should apply for a business credit card. Compared to a business loan, applying for a business credit card is easy as it doesn’t require an employer identification number. It means no matter what type of business you have or are planning to start, you will get a business credit card. 


The only thing is you will receive higher interest rates and lower credit limits on your credit card because of a low credit score. The credit card is secured with a deposit, acting as collateral. 


Consider a merchant cash advance

There are other business funding options as well. You should try out for a Merchant Cash Advance (MCA), which isn’t really a loan. Merchant Cash Advance is a cash advance based on the credit card sales deposited in a business merchant’s account. 


With this, you can sell a portion of your future credit card earrings in exchange for immediate funds. For the MCA application process, your credit history isn’t important. So, it could be a very expensive and risky option for a business with bad credit.


Apply for SBA loans 

SBA loans are a feasible option for lenders because SBA guarantees a certain portion of the loan. This lowers the risk of the lenders as well as you get lots of benefits. But, the SBA loan option is available only if other options are exhausted. 


Though SBA requires a credit score of around 660 or higher, it is a great option for a business with bad credit scores. It is because SBA and its lenders give importance to other factors as well. Even if the credit score is not acceptable, they might process the loan application. 


Don’t lose hope if you have bad credit. There are funding options for your business as well. But, you should try to improve your credit score for future loans and avoid any problems in the loan application process.