Small Business Loan Bad Credit: Everything You Need to Know

Welcome to our comprehensive guide on small business loan bad credit options. Running a small business is already hard enough, and if you have a bad credit score, getting a loan can be even harder. But don’t worry, we’ve got you covered. In this article, we’ll go over everything you need to know about how to get a small business loan with bad credit and what options are available to you. So let’s dive in!

The Importance of Small Business Loans

Small business loans are crucial to the success and growth of many businesses. They provide the financial capital necessary to start or expand operations, buy equipment or inventory, hire employees, or cover unexpected expenses. Unfortunately, many small business owners struggle to obtain the financing they need because of their credit score.

Your credit score is like your financial reputation, and if it’s not great, lenders may see you as a high risk borrower. This can make it more difficult to get approved for a loan and result in higher interest rates and unfavorable terms.

But having bad credit doesn’t mean you’re out of luck. There are still options available to you, so let’s explore them further.

Types of Small Business Loans for Bad Credit

When you have bad credit, your options for getting a loan may be limited, but that doesn’t mean there aren’t any options at all. Here are some types of small business loans you can explore:

Loan Type
Term Loans
Low interest rates, predictable payments
Tougher qualification requirements
Business Lines of Credit
Flexible borrowing, only pay interest on what you use
Higher interest rates, shorter repayment terms
Invoice Financing
Quick funding, based on your customer’s creditworthiness
High fees, only works for businesses with outstanding invoices
Merchant Cash Advances
Quick approval, no collateral required
High fees, daily or weekly repayment schedule

Term Loans

Term loans are a type of loan where you borrow a lump sum of money and pay it back over a set period of time with interest. They are one of the most common types of loans for small businesses, but they can be harder to qualify for if you have bad credit.

However, if you can get approved, term loans typically have lower interest rates and more predictable payments. The downside is that they may have tougher qualification requirements, such as a higher credit score, and may require collateral.

Business Lines of Credit

A business line of credit is a flexible type of financing where you have access to a pool of money that you can draw from as needed. You only pay interest on the amount you borrow, and once you pay it back, you have access to the funds again.

While business lines of credit can be easier to get approved for than other types of loans, they may have higher interest rates and shorter repayment terms. They also may not provide as much financing as other types of loans.

Invoice Financing

Invoice financing is a type of loan where you borrow money against your outstanding invoices. The lender takes a percentage of the amount owed, and you receive the remaining amount. Once the customer pays the invoice, the lender takes their percentage and you receive the rest.

This type of financing can be quick and based on your customer’s creditworthiness rather than your own, but it can also have high fees and only work for businesses with outstanding invoices.

Merchant Cash Advances

A merchant cash advance is a type of financing where you receive a lump sum of money in exchange for a percentage of your future credit card sales. This type of financing can be quick and easy to get approved for, but it also has high fees and a daily or weekly repayment schedule.

Frequently Asked Questions

1. Can I get a small business loan with bad credit?

Yes, you can still get a small business loan with bad credit, but your options may be limited.

2. How bad does my credit score have to be to be considered “bad credit?”

Generally, a credit score below 580 is considered “bad credit.”

3. What is collateral?

Collateral is a type of security for a loan in which you pledge an asset, such as equipment or property, to the lender.

4. How do I know which type of loan is best for my business?

It depends on your business’s needs and qualifications. You should research and compare different types of loans and lenders to find the best fit.

5. Can getting a small business loan help improve my credit score?

If you make your payments on time, getting a small business loan and making payments can help improve your credit score over time.

6. How long does it usually take to get approved for a small business loan?

It can vary depending on the type of loan and lender, but it usually takes anywhere from a few days to a few weeks.

7. What should I do if I get turned down for a loan?

Don’t get discouraged. There are still other options available to you, such as alternative lenders or crowdfunding. You can also work on improving your credit score and reapply in the future.

8. How much can I borrow for a small business loan?

It depends on your business’s qualifications and the type of loan you’re applying for, but typically, small business loans range from $5,000 to $500,000.

9. What documents do I need to apply for a small business loan?

It varies by lender, but typically, you will need to provide financial statements, tax returns, a business plan, and proof of collateral (if required).

10. Do I have to have a strong business credit score to get approved for a loan?

No, but it can help. Some lenders may also consider your personal credit score and financial history.

11. Can I get a loan if I’m a startup business?

Yes, there are loans available specifically for startup businesses, such as SBA loans, but they may have stricter qualifications.

12. What is an SBA loan?

SBA (Small Business Administration) loans are government-backed loans that provide financing to small businesses that may not qualify for traditional financing.

13. What is crowdfunding?

Crowdfunding is a way of raising funds for a business or project by receiving small contributions from a large number of people, typically through online platforms like Kickstarter or GoFundMe.


While it may be more difficult to get a small business loan with bad credit, it’s not impossible. By exploring different types of loans and lenders, improving your credit score, and being persistent, you can find the financing you need to grow and succeed.

We hope this guide has provided you with valuable information and resources to help you navigate the world of small business loan bad credit options. Remember, always do your research and compare your options before making a decision.

Good luck!

Closing Disclaimer

The information provided in this article is for educational purposes only and should not be taken as legal or financial advice. Always consult with a qualified professional before making any financial decisions.