Your personal credit score is one of the most important factors that lenders look at when deciding whether to give you a business loan. A low credit score can make a loan harder to get approved and lead to high interest rates and other penalties. In this article, we will discuss how to get a business loan with bad credit in 2023. So let’s start!
What Do Lenders Consider as Bad Credit?
A bad credit score is generally considered a credit score below 580. A bad credit score can make a loan harder to get approved and lead to high interest rates and other penalties.
Bad credit is often the result of missed payments, bankruptcies, or exceeding credit card limits. To improve your score, you need to be proactive and make sure that all your payments are made on time and that you don’t push yourself too hard.
What is the Minimum Credit Score for a Small Business Loan?
The minimum personal credit score for a small business loan is usually 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.
Can You Get a Loan Without a Credit Check?
It is possible to get a loan without a credit check. However, it’s 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 can get approved for a higher interest loan or through a softer lender.
Types of Business Loans Available to Borrowers with Weak Credits
If your credit is poor, there are still a few bad credit business loan options out there. Let’s take a look at these loan types…
1. SBA Loan
Small Business Administration (SBA) loans are government-backed loans offered to businesses with bad credit. While interest rates may be higher than you would get from a private lender, SBA loans are generally softer and may require collateral.
2. Workplace Cash Advances
A merchant cash advance (MCA) is a type of loan in which the lender advances you money in exchange for a percentage of your future sales. MCAs are generally smoother than traditional loans and can be approved quickly.
3. Credit Business Lines
A credit line is a type of loan that allows you to withdraw as much money as you need up to a certain limit. Lines of credit can be used for working capital and generally have more flexible payment terms than other types of loans.
4. Equipment Credit
An equipment loan allows you to finance the purchase of business equipment. Equipment loans often have lower interest rates than other types of financing and can help you get the equipment you need without having to use up a lot of capital.
5. Micro loans
Microloans are small loans often offered to entrepreneurs who have trouble getting approval for other types of financing. Micro loans 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 from a group of individual investors instead of a traditional lender. P2P loans can be a great option for those with bad credit, as they often have softer terms.
7. Guaranteed Loans
These are loans for which a close friend or family member is the guarantor, meaning they are liable for the loan if you default. Guaranteed loans can be a great option if you have a low credit score, but it’s 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 unpaid invoices. This type of financing can be a great option if you need money quickly and have bills 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, it is important to pay off your balance in full each month to avoid high interest rates.
Crowdfunding is an increasingly popular way to raise money for small businesses. With crowdfunding, you can get funding 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 several steps you can take to improve your chances of being approved for a loan with bad credit. Here are five tips for getting a small business loan with bad credit in 2023:
- Boost Your Credit Score. The first step is to take steps to improve your credit score, such as paying off outstanding debts 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 who is willing to work with you even if you have a bad credit score. Research different lenders and compare their terms and fees to find one that meets your needs.
- Provide Collateral. Some lenders may require collateral such as equipment, real estate or inventory for a loan. Providing collateral can help increase your chances of getting approved for a loan.
- Seek Alternative Financing Options. If you can’t borrow from a traditional lender, consider alternative financing options such as microloans, peer-to-peer lending, crowdfunding, and more.
Bad Credit Business Loans for Beginners
Online lenders are often the best option for beginners looking to get a business loan with bad credit. Online lenders often have softer terms and less stringent requirements than traditional banks, making them a great option for beginners. Let’s take a look at some options for getting business finance with bad credit:
1. OnDeck for Short-Term Loans
With OnDeck, you can get a term loan from $5,000 to $250,000 with a repayment of up to 24 months. You will also be able to apply for further financing after you have paid at least half of the balance.
2. Bluevine for Invoice Factoring or Financing
With a company like Bluevine, which has partnered with FundThrough to offer invoice factoring, you can release cash tied up on unpaid invoices. To qualify, you must have approximately $100,000 in annual income, have been in business for at least three months, and have a credit score of 530+.
3. Lendio for Credit Business Line
You can get a business loan of between $1,000 and $500,000 in as little as one day using Lendio. But the interest is between 8%-60% which is higher than traditional business loans.
4. CurrencyFinance for equipment loans
CurrencyFinance offers qualified borrowers up to $500,000 in loans and repayment terms of up to 72 months. To have the most choice with CurrencyFinance’s offerings, you must have a FICO score of 625 or higher and more than 2 years of work experience.
5. Participation for Micro-Credits
Accion is a nonprofit that offers microloans of up to $100,000 at interest rates as low as 5.99%. The great thing about Accion is that you can get a quote without affecting your credit score.
6. Reliable for Working Capital Loans
If your credit is weak and you need money quickly to cover daily expenses, then a working capital loan through Credably may be a great option for you. However, to qualify, you must provide collateral up to 90% of the loan amount.
7. Affordability for Vendor Cash Advance
With Payability, you can get up to $250,000 in financing the day you’re approved. They work with businesses from 180 countries in 38 currencies. The great thing is that there is no credit check.
8. Quick Financing for Business Loans
Getting a small business loan through Rapid Finance is a simple, straightforward process and you can apply directly from their website. Loan terms range from three to sixty months, and you can receive funds within hours of approval.
9. American Express Plum Business Credit Card
If you’re looking for something less traditional, you might want to consider a business credit card like the American Express Plum Business Credit Card. This card allows you to carry your balance for up to 60 days with no interest, no spending limit and more.
10. Personal Loans
Personal loans can also be a great option for business owners with bad credit. As long as you use the money for business expenses and are responsible for making the payments, you can use them to finance your business.
Don’t Let Bad Credit Keep You From Getting Small Business Loans
It’s true that bad credit can make it difficult to get a business loan, but that doesn’t mean it’s impossible. With a little creativity and research, you can find options that will work for you. You can get the funds you need to grow your business, whether from a traditional lender or an alternative source. Don’t let bad credit stop you from achieving your dreams!