Business Loans for Bad Credit

Running a small business takes ambition and a lot of gumption. Small businesses comprise 99.9% of U.S. businesses, which proves that entrepreneurs are the backbone of the American dream. At Clarify, we're committed to helping business owners get the working capital they need to grow their companies.

While a personal credit score is a factor in securing a loan, we believe it shouldn't be the only deciding factor. We understand that your credit rating doesn't define you or your business.

This is why we take a holistic view of your finances and business model to get you approved at competitive APRs. Clarify Capital works with more than 75 lenders, and we can help you get approved and funded within 48 hours on our marketplace. You could even get approved on the same day you apply.

How To Improve Your Credit Score Before Applying for a Business Loan

Improving your credit score before applying for a business loan can help you qualify for better interest rates and loan terms. Here are key strategies to enhance your creditworthiness:

• Review your credit report. Check reports from the major credit bureaus for errors or inaccuracies and dispute any discrepancies.

• Make timely payments. Pay off outstanding debts and maintain consistent, on-time payments for all loans and credit cards.

• Lower credit utilization. Keep your credit card balances low relative to your credit limit to improve your credit score.

• Increase your business revenue. Lenders consider annual revenue when assessing eligibility, so demonstrating higher revenue can offset a poor credit history.

• Build business credit. Open a business credit card or secure small credit lines with suppliers to establish a solid business credit history.

• Work with alternative lenders. Online lenders and alternative financing options, such as invoice factoring or merchant cash advances, may offer better approval odds.

What Lenders Consider When Approving a Bad Credit Business Loan

For most lenders, a bad credit score ranges from 450 to 600. Traditional banks and financial institutions will rarely fund owners with these credit scores, but you're in luck! Our network of alternative lenders looks at several other factors to approve your business loan application.

During the underwriting process, lenders consider various aspects beyond just your credit score. They may look at reports from the credit bureaus (Experian, Equifax, or TransUnion) to get a comprehensive view of your financial history. Additionally, some lenders use a factor rate instead of traditional interest rates to determine the cost of your loan.

Some lenders may require a personal guarantee, meaning you agree to be personally liable for repaying the loan if your business cannot meet its obligations. A personal guarantee means you're personally responsible if the business defaults. It's common with bad credit loans, especially when the business has a limited credit history or collateral.

Here are some factors that they weigh regardless of your credit report:

• Gross monthly revenue. Most lenders like to see you generating at least $10,000 in monthly gross revenue. They use your income to calculate an approved loan amount.

• Outstanding debt. To make the approval process faster, make sure you know how much outstanding debt you currently owe. This information is helpful because lenders also look at your debt-to-income ratio.

• Time in business. At Clarify, we recommend that your business has been operational for at least six months. On average, companies that have been in business for more than five years have the highest rate of approval with good interest rates. That's why the longer you've been in business, the better.

• Operating cash flow. Be ready with the documents needed for the application process. Make sure you have the last three months of your business bank account statements handy. Business lenders will ask to see your most recent bank statements to verify your operating cash flow.

• Business bank account. Most lenders require a business bank account to review cash flow and verify deposits. If you're currently using a personal account for business activity, opening a dedicated business bank account will improve your credibility and simplify underwriting.

• Business credit history. If you have established business credit in the past, that can help, too. Although your personal creditworthiness matters, it's more important if you can show that your company's cash flow is stable and your business can pay its loans. Having a solid business plan helps, as well.

• Profitability. Is your business profitable or showing a positive trend toward profitability month over month? Your dedicated Clarify adviser can help point you in the right direction so you can get the best financial solution for your company.

Apply for a Small Business Loan

Expert Tip: If your business revenue is strong but your credit is low, ask your lender to prioritize cash flow underwriting. This approach focuses more on income and bank activity than on your FICO score.

3 Paths to Getting Approved With Bad Credit

Even with a credit score under 600, you have multiple ways to secure financing. Here's how most Clarify applicants get funded:

• Cash flow-based approval. If your business brings in $10K+/month, lenders may prioritize deposits and sales volume over credit score.

• Asset-backed approval. Use equipment, vehicles, or unpaid invoices as collateral to reduce risk for lenders and unlock higher loan amounts.

• Co-signed or guaranteed approval. A co-signer or personal guarantee may improve terms and expand your financing options, especially for newer businesses.

A Clarify advisor can help you decide which path fits your business and how to position your application for success.

How Interest Rates Are Calculated With Bad Credit

When you apply for a loan with bad credit, you may encounter different ways lenders calculate costs:

• APR (annual percentage rate). This includes both interest and fees, giving you a full view of the cost of borrowing.

• Factor rate. Some lenders use a multiplier instead of a percentage. For example, a 1.3 factor rate on a $10,000 loan means you'll repay $13,000 — regardless of how quickly you pay it off.

Why it matters: Loans with factor rates often appear cheaper upfront, but can be more expensive in the long term. Always compare the total repayment amount, not just the rate, and ask your lender how fees (origination, early repayment, etc.) are structured.

Can a Co-Signer or Collateral Help You Qualify?

If your credit score is holding you back, you may still qualify by strengthening your application in other ways:

• Using a co-signer. A trusted person with strong credit can back your loan. If you default, they're responsible, so it's a big commitment, but it can improve your chances and rates.

• Offering collateral. Assets like vehicles, equipment, or accounts receivable can reduce risk for lenders. This may help you get approved even with poor credit.

These strategies aren't required but can make a significant difference, especially if you're applying for a larger loan or need lower rates.

Best Business Loans For Bad Credit Scores

At Clarify, we believe that a low credit score shouldn't stop you from business success. So, we work with you to identify a loan product that fits your needs and unique cash flow requirements.

Here are the best types of loans for borrowers with less-than-stellar personal credit ratings.

Short-Term Business Loan

Term loans are a type of business financing with short repayment terms ranging from six months to two years. You receive a lump-sum amount that you repay through fixed, regular payments. A short-term loan is an excellent option for new businesses or startups that may not qualify to receive funding from traditional lenders like banks or credit unions.

With Clarify, you can get short-term loans with APRs as low as 7% without any collateral, so you don't have to risk your business or personal assets. Term loans also have low credit score requirements. As long as your business has been operational for at least six months and you can prove that you generate over $10,000 in monthly income or have at least $120,000 in annual revenue, we can get you pre-approved. Many lenders can even complete a credit check and provide funding within one business day.

• Apply for a Short-Term Loan

Business Line of Credit

A line of credit works much like a business credit card. You get a set credit limit, but you only make payments or get charged interest for the amount you borrow. Unlike a credit card, a line of credit has a much lower interest rate and doesn't have any prepayment penalties. It's also a great tool to improve your business credit score over time.

Most business owners use this type of funding to cover working capital, such as buying inventory or paying payroll. But the main advantage of a line of credit is its flexibility — you can use it however or whenever your business needs it.

• Apply for a Line of Credit

Invoice Financing

Invoice financing is a way for businesses to borrow money using accounts receivable. If you have outstanding invoices, it's an excellent funding option. The invoices act as collateral, so your credit score isn't a factor in getting approved.

A factoring company assumes responsibility for collecting outstanding invoices, paying you up to 100% of the unpaid invoices and receivables upfront, and helping you avoid cash flow delays. Once the invoices are paid, the lender deducts fees automatically from the credited amount, similar to how credit card and debit transactions process payments. There are various invoice financing providers available, each offering different terms and rates to suit your business needs.

This might be the easiest loan to get if you have bad credit. Since the lender is primarily concerned with the value and reliability of your invoices rather than your personal credit history, it can be more accessible for businesses with less-than-stellar credit ratings.

• Apply for Invoice Factoring

Equipment Financing

Just like a traditional car loan, equipment financing provides capital to purchase new or used equipment. Whether you're a trucker, restaurant owner, or construction company, an equipment loan can help you grow your business or replace old assets.

• Apply for Equipment Financing

SBA Loans

SBA loans, backed by the Small Business Administration, are an excellent option for businesses with less-than-perfect credit. While these loans can be more challenging to qualify for upfront, they often offer lower interest rates and longer repayment terms compared to traditional loans. While these loans are primarily designed for small businesses, certain SBA programs may also support non-profit organizations looking for working capital or expansion funding. For smaller funding needs, an SBA microloan may be a great option for qualifying businesses seeking flexible financing.

• Apply for SBA Loans

Secured vs. Unsecured Business Loans

One major factor lenders consider is whether the loan is secured or unsecured. It's important to understand the difference before choosing a loan option.

• Secured loans. Backed by collateral such as equipment, inventory, or real estate. These loans often come with lower interest rates but put assets at risk if you default.

• Unsecured loans. No collateral required. While typically more expensive, they're faster to fund and less risky for the borrower's assets.

If you don't have valuable assets or aren't comfortable using them as collateral, unsecured loans may be your best bet, especially with lenders who evaluate cash flow over credit history.

Comparison of Business Loan Options for Borrowers With Bad Credit

Choosing the right loan option depends on factors like eligibility requirements, interest rates, and repayment terms. Below is a comparison chart of financing options available to small business owners with bad credit.

How To Choose the Right Loan Type for Your Business Needs

Choosing the right loan depends on how you plan to use the funds and your business's financial profile. Here's a quick guide to help you match your needs with the right product:

• Seasonal businesses. A business line of credit gives you flexibility to borrow only when needed, which is ideal for fluctuating cash flow.

• Startups or new businesses. Short-term loans are often easier to qualify for and provide fast access to capital without long commitments.

• B2B companies with outstanding invoices. Invoice financing lets you turn unpaid invoices into immediate cash, regardless of credit score.

• Businesses with frequent equipment needs. Equipment financing helps you acquire essential tools and machinery without using working capital.

• Established businesses with strong financials. SBA loans offer low rates and long repayment terms, but are best suited for those with two+ years in business.

Still unsure? Your Clarify advisor can help you compare options based on your specific goals.

How Business Credit Scores Impact Long-Term Growth and Transitioning To Better Loan Options

A strong business credit score opens doors to lower interest rates, higher loan amounts, and better financing options. Here's how improving your score can lead to better funding opportunities:

• Lower interest rates. Lenders offer better business loan options to borrowers with high credit scores, reducing borrowing costs.

• Access to long-term financing. Businesses with strong credit profiles qualify for long-term loans and SBA loans with extended repayment terms.

• Increased borrowing limits. A high business credit score allows companies to access higher loan amounts, making it easier to fund expansion.

• More financing options. Establishing a solid credit history helps businesses transition from short-term loans and merchant cash advances to lower-cost financing.

• Stronger financial stability. Managing debt wisely and making timely payments boosts creditworthiness, ensuring access to future funding when needed.

Why “Bad Credit” Doesn't Mean What It Used To

In the past, a credit score under 600 could shut you out of most business financing options. But that's changing. Today, many alternative lenders focus more on your monthly revenue, cash flow, and business model than just your FICO score.

That means even if you've had credit setbacks, you can still get approved, especially if your business is bringing in steady income. With Clarify's network of 75+ lenders, we're seeing more approvals for owners who would've been denied by traditional banks just a few years ago.

Your credit score still matters, but it's no longer the gatekeeper. What matters more is a strong business and a clear plan for using the funds.

Top Uses for Bad Credit Loans

At Clarify, we believe that low credit scores shouldn't be a barrier to reaching your business goals. Here are some ways borrowers with lower credit scores use loans to meet their business needs:

• Slow periods. During slow periods, you might experience a drop in sales. A business loan, whether it's through invoice factoring or a short-term business loan, can provide an infusion of working capital to help offset a temporary fluctuation in sales.

• Real estate. Expanding or relocating your business often requires securing new commercial space. Business loans can provide the funds necessary to purchase or lease real estate, giving your business the right environment to grow. Whether it's a storefront, office, or warehouse, financing options are available to help make your vision a reality.

• Inventory and supplies. Many businesses get loans to purchase inventory and supplies to ensure they can meet customer demands and keep operations running smoothly. Some business owners also use their funds to buy in bulk and save money that way.

• Equipment needs. We understand that you may need equipment to get the job done. That's why we offer financing solutions like working capital loans and equipment financing to help you purchase new or used equipment. These types of financing are also available for borrowers with low credit scores.

• Payroll and taxes. Payroll and taxes are unavoidable expenses every business incurs. If you're low on funds, loans can help ensure you can meet your financial obligations to your employees and the government without delay.

• Refinancing. Refinance existing debt with loan terms that work for you. Whether you want to pay off your loans with high interest rates or have more flexibility with your payment structure, we have you covered. Some lenders may require recent tax returns as part of the refinancing process, so be prepared to provide this information.

Cash Flow Projection Example: Allocating a Business Loan Efficiently

A well-planned cash flow projection ensures that borrowed funds are used effectively. Below is an example of how a business can allocate a $50,000 short-term loan to maximize growth and sustain operations.

Projected Loan Allocation

By strategically allocating funds, businesses can increase revenue, improve cash flow stability, and strengthen financial health while meeting loan repayment terms. Here's a sample loan allocation to show how bad-credit borrowers can deploy funds strategically for growth and stability.

Bad Credit Business Loan FAQs

Navigating the world of business finance with imperfect credit can be daunting. We've compiled answers to the most common questions, providing clarity and confidence in your decision-making.

Building Your Path to Business Success

Securing a low-rate business loan with bad credit may seem challenging, but it's entirely possible with the right approach. Understanding your business loan options, including types of business loans like short-term loans, lines of credit, and SBA loans, can help you find a solution tailored to your needs.

Even with a minimum credit score, you can qualify for financing and take steps to build business credit over time. Keep in mind that lower credit scores might lead to higher interest rates, but focusing on improving your creditworthiness can help you unlock better terms in the future. By exploring small business financing options and working with trusted advisors, you can keep your business on track and positioned for growth.

If you're ready to explore your business loan options, don't let a low credit score hold you back. Visit Clarify Capital to apply today and discover funding solutions tailored to your needs.