How to Get a Business Loan with Bad Credit

how to get a business loan with bad credit sba loans approved

Having the will and desire to start your own business is a positive step in making your dreams a reality. Once you get everything outlined you need to figure out the cost of maintaining your business until it becomes profitable.

The odds of keeping your doors open beyond five years decrease with every passing year. By year five only about half of small businesses will still have their doors open. The number drops to a third by year ten.

One of the leading causes of small business failures is the lack of capital. If you have bad credit getting funding can be hard but is not impossible. Knowing how to get a business loan with bad credit is something you need to learn about.

If your business is already in operation and you need funding there is hope. Keep reading for tips on overcoming financial hurdles when you have bad credit.


Understand Your Credit 

Oftentimes there is enough money available to get your business up and running. But too often business owners have unrealistic expectations of what it will take to maintain their business. The focus is often on how much money will be made and too little on the cost of operations.

If your business started without the use of a business loan you may not know what your credit looks like. A common mistake that business owners make is in believing their personal credit is not connected to their business credit. This is inaccurate.

Your personal credit score plays a big part in your business ability to get a loan. 

Before applying for a business loan check your credit with the three major bureaus.


  • Equifax
  • Experian
  • TransUnion

You are entitled to a free copy of your credit report once a year. If there is inaccurate information file a dispute to have it removed.


How to Get a Business Loan with Bad Credit Using a Community Bank

It's a long shot but sometimes having a business account with a community bank has its benefits. They are sometimes more likely to lend to small businesses

These financial institutions will weigh-in their relationship with a business owner when making their final decision. This means a good banking history and the ability to show your business profitability is a plus.

If you do not have a business bank account already consider opening one today at a federally insured community bank or credit union. It can be beneficial in the long run.


Consider a Loan from Someone You Know

When it comes to small business loans no credit check, you may want to try borrowing the money from a family member or friend. But before considering this option, consider the consequences if you are unable to abide by the terms of the agreement.

If you are confident you can repay the money put together a professional presentation. Include a business plan, profit-loss statement, and the desired repayment terms including interest. Just because you know the potential lender, doesn't mean you shouldn't treat the transaction the same as a bank would.

Make a list of potential lenders and schedule a meeting with each one. Be honest about your situation.


Take Out an Installment Loan

These bad credit loans can be secured or unsecured. The borrower is given a set number of payments over a specified time period to repay the loan.

With a secured loan, collateral will be required. A common example is when you purchase a vehicle or house. The property isn't technically yours until the loan has been paid off and you receive a title.

Another form of secured loan is when you take something to a pawn shop and secure a loan against it. The pawnshop holds it until the loan has been satisfied. 

Unsecured business loans for bad credit may entail providing the lender the ability to automatically draft payments from your bank account. You may also have an untraditional repayment plan and higher interest rates.


Borrow Against Your Credit Card Balances

An important benefit of not exhausting the line of credit on your credit cards is it provides an easy option when you need a loan. Some lenders set a maximum on the amount borrowers can take as a cash advance. Others allow for the total available balance to be made available.

To take out a loan against your credit card balance simply take your credit card to any bank and let the teller know the amount you want. You do not have to have a relationship with the bank. Just look for the credit card logos on the door.

Check with our financial institution to see if there are additional fees for borrowing against your balance. You also want to check and see if the interest rate is higher.

The pros and cons of credit card loans are you have immediate access to funding, but you could end up paying heavy interest in the long run. So try to repay the loan as quickly as possible.


Take Out an Online Business Loan

Growing in popularity, you can expect to receive up to $50,000 from one of these short-term loans for businesses with bad credit. The approval time only takes a few days and the process is nowhere near that of a traditional bank.

Online loans are considered short-term loans so only borrow what you can realistically repay under the terms of the loan. The interest rates will be higher than normal and payments are made either weekly or bi-weekly via ACH debit.

This is a great business loan for bad credit solution if handled wisely. 

Consider Alternative Financing 

If your business has outstanding invoices on payment terms of 30-90 days, alternative financing methods like invoice factoring may be a good option. When you factor your invoices, you’re effectively selling them to a third party in exchange for cash up front. It’s faster than a traditional bank loan and the credit requirements are low, as the factoring company is more concerned with the creditworthiness of your customers than you as a business owner. 

That said, invoice factoring isn’t the right solution for everyone, or every industry. Only B2B customers are generally a fit for this type of alternative financing. If you think your business may be a fit, start comparing factoring companies and see which has the best reputation and the most experience in your industry.”


Did You Find This Information Useful?

You never know when knowing how to get a business loan with bad credit will come in handy. Having the information when you need it gives you peace of mind

We have a lot of solutions to everyday living when it comes to staying frugal with your business finances. Check out more of our frugal finance and loan articles right now to help improve your business outcomes.

Frugal Finance: New Articles For Fiscal Fitness