Bad Credit Business Loans: How to Get Funded With Less-Than-Perfect Credit

You can get a business loan with bad credit. It's harder, and it costs more, but the doors aren't closed. 

Lenders exist specifically to serve business owners whose credit scores don't meet traditional bank standards. Some work with scores as low as 500. 

The key is knowing where to look, what to expect, and how to position yourself for approval. Your credit history matters, but it's not the only thing lenders consider. 

Revenue, time in business, and cash flow can all work in your favor even when your credit score works against you.

What Counts as "Bad Credit" for Business Loans?

Credit scores exist on a spectrum, and different lenders draw the line in different places.

Most traditional banks want to see personal credit scores of 680 or higher. Fall below that and you're probably not getting approved, regardless of how strong your business looks otherwise. For these lenders, anything under 680 is effectively "bad credit" even though the credit bureaus wouldn't categorize it that way.

Online lenders and alternative financing companies are more flexible. Many work with scores in the 600 to 650 range. Some go lower. A handful will approve borrowers with scores in the 500s, though you'll pay significantly higher rates at that level.

According to Experian, the average FICO score in the United States hit 715 in 2025. That means roughly half of Americans have scores below that mark. If you're running a business with a credit score in the 500s or 600s, you're not alone. You're just working with a different set of options than someone with a 750.

The important thing to understand is that "bad credit" is relative to the lender you're approaching. A score that gets you rejected at a bank might be perfectly acceptable to an online lender. The game is finding the right match.

Why Credit Scores Matter to Lenders

Lenders use credit scores as a shortcut for predicting risk. Your score compresses years of financial behavior into a single number that's easy to compare across applicants.

A high score suggests you've consistently paid debts on time, kept balances reasonable, and managed credit responsibly. A lower score might indicate missed payments, high utilization, collections, or other red flags. From a lender's perspective, past behavior predicts future behavior. Someone who's struggled with debt before is statistically more likely to struggle again.

But here's what the score doesn't capture: context. Maybe your credit took a hit during a divorce. Maybe you had medical bills that spiraled. Maybe you made mistakes in your twenties that you've since corrected. The score doesn't know any of that. It just reflects what's in your credit file.

That's why many alternative lenders look beyond the score. They want to see your bank statements. They want to understand your revenue. They're trying to answer a different question: can this business handle the payments? Your credit history is part of that answer, but it's not the whole thing.

Business Loan Options for Bad Credit

Not every financing product requires great credit. Here's what's realistically available.

Merchant Cash Advances

MCAs are often the most accessible option for business owners with credit challenges. Approval is based primarily on your sales volume, not your credit score.

Here's how it works: you receive a lump sum upfront, and the lender collects repayment as a percentage of your daily or weekly credit card sales or bank deposits. If sales are slow, you pay less. If sales are strong, you pay more. The total amount you owe stays the same regardless.

The approval process is fast. Many MCA providers can fund within 24 to 48 hours. Requirements are minimal. Typically you need at least six months in business and consistent monthly revenue.

The tradeoff is cost. MCAs use factor rates rather than interest rates, and the effective APR can run anywhere from 40% to over 100% depending on how quickly you repay. They're expensive. But if your credit rules out other options and you need funding fast, they work. Our guide to same-day business loans covers this in more detail.

Short-Term Loans from Online Lenders

Several online lenders specialize in short-term business loans for borrowers with imperfect credit. These are actual loans with fixed repayment terms, usually three to eighteen months.

Credit requirements vary by lender, but many work with scores in the low 600s or even 500s. They offset the credit risk by charging higher rates and requiring strong revenue. Expect APRs in the 30% to 60% range for borrowers with bad credit.

The application process is typically quick. Submit basic information, connect your bank account, and you might have a decision within hours. Funding often happens within one to three business days.

Business Lines of Credit

A business line of credit gives you access to funds you can draw on as needed, rather than taking a lump sum upfront. You only pay interest on what you actually use.

Some online lenders offer lines of credit to borrowers with credit scores in the 600s. The limits might be lower than what someone with excellent credit would receive, and the rates will be higher. But the flexibility can be worth it if your funding needs are unpredictable.

Lines of credit for businesses with less-than-perfect credit typically range from $5,000 to $250,000, depending on revenue and other factors. Higher limits up to $5 million are available for stronger applicants.

Invoice Factoring

If your business has outstanding invoices from creditworthy customers, you can convert those receivables into immediate cash through invoice factoring. The factoring company advances you a percentage of the invoice value, typically 80% to 90%, and collects payment directly from your customer.

The beauty of factoring is that approval depends more on your customers' creditworthiness than yours. If you're invoicing established companies with good payment histories, your personal credit score matters much less.

Factoring fees usually run 1% to 5% per month. It's not cheap, but it's accessible. We've written more about how invoice factoring works if you want to dig deeper.

Equipment Financing

Buying equipment? The equipment itself serves as collateral, which makes lenders more comfortable despite credit issues. If you stop paying, they can repossess the equipment and recover some of their money.

Equipment loans and leases are available to borrowers with credit scores in the 500s and 600s. Rates will be higher than what someone with excellent credit would pay, but approval is more likely because the loan is secured.

This only works if you're actually buying equipment. But if you need a truck, machinery, computers, or other business assets, equipment financing is often easier to get than an unsecured loan.

Microloans

Nonprofit lenders and community development financial institutions (CDFIs) offer microloans specifically designed for small businesses that don't qualify for traditional financing. Loan amounts are small, usually under $50,000, but the credit requirements are more forgiving.

These lenders often consider factors beyond your credit score. They might look at your business plan, your community ties, or the social impact of your business. The process can be slower than online lenders, but the rates are typically much more reasonable.

The SBA also has a microloan program that works through nonprofit intermediaries. Amounts go up to $50,000 with rates that are far better than what you'd get from a high-risk online lender.

What to Expect: Rates and Terms for Bad Credit Borrowers

Let's be realistic about what bad credit costs you.

If you're borrowing with a credit score under 600, expect to pay significantly more than someone with good credit. How much more depends on the product and the lender, but here are rough ranges:

Short-term online loans: 30% to 80% APR Merchant cash advances: 40% to 150% effective APR Lines of credit: 25% to 50% APR Invoice factoring: 15% to 60% effective APR (depending on how long invoices remain outstanding) Equipment financing: 15% to 35% APR

Compare that to what a well-qualified borrower might pay at a bank: 7% to 12% APR. The gap is real.

You'll also face shorter repayment terms. Many bad credit loans require repayment within six to eighteen months. That means higher payments even on smaller loan amounts.

Is it worth it? That depends entirely on your situation. If the funding lets you take on a profitable project, cover a temporary gap, or avoid a worse outcome, the math might work even at higher rates. But go in with eyes open. Know what you're paying and make sure the use of funds justifies the cost.

How to Improve Your Approval Odds

You can't fix your credit overnight, but you can do several things to strengthen your application.

Focus on Revenue

Lenders who work with bad credit borrowers put heavy weight on revenue. Strong, consistent sales signal that you can handle payments regardless of what your credit score says.

If your revenue has been growing, make sure that's visible in your bank statements. If you have seasonality, be ready to explain the pattern. 

Keep More Money in Your Bank Account

Many alternative lenders look at your average daily balance as an indicator of financial health. A business that consistently maintains $20,000 in the bank looks more stable than one that hovers near zero.

If you can, build up your balance before applying. Even a few weeks of higher balances can help your application.

Provide Collateral

Offering assets as security reduces the lender's risk, which can tip a borderline decision in your favor. Equipment, vehicles, real estate, or accounts receivable can all serve as collateral.

You don't always have to put up collateral for bad credit loans. But having the option might get you approved when you otherwise wouldn't be, or might get you better terms.

Get Your Documents Ready

Disorganization hurts you. If you can't produce clean bank statements, basic financials, or business documentation when asked, lenders start to wonder what else might be messy.

Before you apply, gather your last three to six months of bank statements, your business formation documents, any tax returns you have, and identification. Having everything ready signals that you run a real operation, not a chaotic side hustle.

Be Honest About Your Credit

Lenders are going to pull your credit anyway. If there are issues, you're better off addressing them upfront than hoping they'll be overlooked.

If you have specific circumstances that explain the credit problems, a brief explanation can help. Not an essay. Not excuses. Just context. "Credit took a hit during COVID when my restaurant was closed for four months" tells a different story than unexplained missed payments.

Start Smaller

A smaller loan is easier to get approved for than a large one. If you're on the edge of qualifying, consider requesting less than you originally planned.

Successfully repaying a smaller loan also builds your relationship with that lender. The next time you need funding, you'll have a track record with them. And your credit score will have benefited from the on-time payments.

Building Credit While Running Your Business

Bad credit doesn't have to be permanent. While you're operating your business, you can take steps to improve your score over time.

Pay everything on time. This is the single biggest factor in your credit score. Set up autopay if you have to. Late payments hurt you for years.

Keep credit utilization low. Using more than 30% of your available credit drags down your score. If you're maxed out on credit cards, paying down balances will help.

Don't close old accounts. Length of credit history matters. That credit card you've had for fifteen years is helping your score even if you don't use it.

Check your credit reports for errors. Mistakes happen. Dispute anything inaccurate. A single error could be costing you points.

Establish business credit. Open trade accounts with suppliers who report to business credit bureaus. Get a business credit card. Over time, your business can build its own credit profile separate from your personal score. We've covered this more in our guide to getting business loans for your LLC.

Improving your credit takes time. There's no quick fix. But every month of responsible behavior moves you closer to better financing options and lower rates.

Avoiding Predatory Lenders

Bad credit makes you a target for predatory lending. Be careful out there.

Red flags to watch for:

Guaranteed approval. No legitimate lender guarantees approval without reviewing your application. If someone promises funding regardless of your situation, something's wrong.

Upfront fees before funding. Legitimate lenders deduct fees from loan proceeds. If you're asked to pay money before receiving your loan, walk away.

Pressure tactics. Any lender pushing you to sign immediately without time to review terms is not acting in your interest.

Vague or hidden terms. If you can't get a straight answer about the total cost of borrowing, the repayment schedule, or the APR equivalent, that's intentional. Good lenders are transparent.

No physical address or verifiable business. Do basic due diligence. Check reviews. Verify the company exists. Scammers prey on desperate borrowers.

Higher rates for bad credit are normal. Predatory behavior is not. Know the difference.

Frequently Asked Questions

What credit score do I need for a business loan?

It depends on the lender. Banks typically want 680 or higher. Online lenders work with scores in the 600s. Some alternative lenders approve borrowers with scores as low as 500. The lower your score, the fewer options you have and the more you'll pay.

Can I get a business loan with a 500 credit score?

Yes, though your options are limited. Merchant cash advances, some short-term online loans, and invoice factoring may be available. Expect high rates and short terms. Focus on building your credit while you operate so better options open up over time.

Do business loans check personal credit?

Most do, especially for small businesses and newer companies. Your personal credit score is usually part of the approval decision even when you're borrowing in your business's name. As your business grows and establishes its own credit history, personal credit matters less.

Will a business loan help my credit score?

It can. If the lender reports to credit bureaus and you make all your payments on time, your score should benefit. Not all business lenders report to personal credit bureaus, though. Ask before you borrow if this matters to you.

What's the easiest business loan to get with bad credit?

Merchant cash advances have the lowest credit requirements because approval is based primarily on sales volume. Invoice factoring is also accessible if you have receivables from creditworthy customers. Both are easier to get than traditional loans but come with higher costs.

How can I get a business loan with no credit check?

True no-credit-check loans are rare and often predatory. Some merchant cash advances and invoice factoring arrangements do minimal credit checks, focusing instead on revenue and receivables. Be cautious of any lender marketing "no credit check" loans and read the terms carefully.