How to Get a Small Business Loan with Bad Credit 2025

Getting a small business loan with bad credit may seem like an uphill task, but it’s far from impossible. Many entrepreneurs with less-than-perfect credit scores still find ways to fund their business dreams. In this blog post, we’ll guide you through practical steps and strategies to secure a business loan even with bad credit.

Understanding Bad Credit and How It Affects Business Loans

Bad credit typically refers to a personal credit score below 580 on the FICO scale. Lenders use credit scores to evaluate how likely you are to repay a loan. A lower score signals higher risk, which can lead to fewer loan options and higher interest rates.

However, bad credit doesn’t automatically disqualify you from financing. It simply means you’ll need to work harder to prove your business’s value and potential.

1. Know Your Credit Score

Before applying for any loan, get a clear picture of your current credit standing.

• Request a free credit report from agencies like Equifax, Experian, or TransUnion
• Review your score and identify any errors or outdated information
• Dispute inaccuracies to improve your score, even by a few points

Knowing your score helps you target the right lenders and loan types.

2. Explore Alternative Lenders

Traditional banks often require strong credit scores, but alternative lenders offer more flexible requirements. These include:

• Online lenders (e.g., OnDeck, Fundbox, BlueVine)
• Microfinance institutions
• Community Development Financial Institutions (CDFIs)
• Peer-to-peer lending platforms

Alternative lenders usually look at your business revenue, cash flow, and overall performance rather than just your credit score.

3. Consider Loan Types That Work with Bad Credit

Some loan types are more accessible to borrowers with bad credit:

a. Merchant Cash Advances (MCA)

You receive a lump sum in exchange for a portion of future sales. Approval is based on daily sales volume rather than credit score.

b. Invoice Financing

You use unpaid customer invoices as collateral to get immediate funding. This is ideal for businesses waiting on payment from clients.

c. Equipment Financing

If you’re buying machinery or tools, the equipment itself serves as collateral. This reduces the lender’s risk.

d. Business Line of Credit

Some online lenders offer revolving credit lines for businesses with poor credit, especially if your revenue is strong.

e. Microloans

Nonprofit lenders and government programs offer microloans (typically under $50,000) to underserved entrepreneurs, often with lenient credit requirements.

4. Strengthen Your Business Profile

Even if your personal credit is low, you can still impress lenders by showcasing your business strength.

• Prepare a detailed business plan
• Demonstrate consistent revenue or growth trends
• Show positive cash flow
• Highlight industry experience and business management skills

If your business is registered and has a separate bank account and Employer Identification Number (EIN), this also helps build trust.

5. Offer Collateral or a Personal Guarantee

Offering collateral (like property, equipment, or inventory) can help reduce the lender’s risk and improve your chances. You might also need to sign a personal guarantee, which means you’ll repay the loan personally if the business fails.

6. Bring in a Creditworthy Co-Signer

If you can’t qualify on your own, consider asking someone with a good credit score to co-sign the loan. A co-signer shares the repayment responsibility and can improve your loan terms.

7. Build Business Credit Separately

Over time, focus on improving your business credit profile. Open trade lines with vendors who report payments to credit bureaus, pay bills on time, and avoid unnecessary debt.

Building strong business credit can help you qualify for better loans in the future, even if your personal score stays low.

8. Look into Government-Backed Loans

Programs like the Small Business Administration (SBA) microloan or Community Advantage loan offer support to businesses with limited credit. While SBA loans are generally credit-sensitive, some programs are more lenient and focus on your overall business potential.

9. Avoid Predatory Lenders

Desperation can lead to high-risk loans with unreasonable interest rates and hidden fees. Always read the fine print, research the lender, and avoid any deal that sounds too good to be true.

10. Work on Improving Your Credit

Even while seeking loans now, start taking steps to boost your credit score:

• Pay bills on time
• Keep credit utilization low
• Dispute inaccuracies on your report
• Avoid opening too many new credit lines at once

A better score in the future opens the door to better financing options.

Conclusion

While bad credit makes it harder to get a small business loan, it doesn’t make it impossible. With the right strategy by targeting flexible lenders, offering collateral, and focusing on your business strengths, you can find the funding you need to grow your business.

Stay consistent, avoid predatory loans, and work toward improving your financial profile over time. With perseverance and planning, your credit score doesn’t have to stop your entrepreneurial journey.