Reviewed by
Bad Credit? You Can Still Qualify for a Business Loan
Don't let a low credit score keep you from growing your business. Clarify Capital connects you with lenders who look beyond your FICO score, focusing on your revenue, cash flow, and business potential instead.
Minimum credit score: 500
Funding speed: As fast as 24 hours
Loan amounts: $10,000 to $500,000+
No collateral required for select loan types
Our lending advisors compare options from our network of 75+ lenders to find competitive rates tailored to your business at no cost to you.
There are a ton of perfectly understandable reasons why a business might have bad credit.
Maybe cash was tight, and you paid a big invoice a few weeks late. Maybe you had a period of maxing out your credit lines to cover big expenses, and the high utilization knocked down your FICO score. Maybe you were expanding quickly and accidentally let a payment slip through the cracks. Maybe you're just a new company that hasn't built out your business credit profile yet.
No matter how or why you got there, you're not alone. And if you're looking for business financing while trying to dig yourself out of the bad credit hole, hope isn't lost. It's very possible to find lenders who offer reasonable rates and repayment plans, even without a spotless financial record.
The Truth About Getting a Business Loan With Bad Credit
Traditional banks rely heavily on your personal FICO score when assessing your business's eligibility for their loans. The scores are the most direct and objective way to tell what kind of loan candidate you and your business are. These institutions are the hardest to appeal to if you have a mediocre or low personal credit score. For them, anything below about 600 is often a red flag.
Other types of lenders, on the other hand, tend to be more flexible. (Think online lenders, fintech platforms, and alternative lenders.) They look at you and your business's history more holistically. Though most will also want to know your FICO score, they tend to also take into account other things like your company's revenue, cash flow, time in business, and growth potential.
The Best Business Loans for Low Credit Scores
These are funding options where qualifying tends to be more flexible and, therefore, usually work best for businesses with low personal credit scores.
| Bad Credit Business Loan Options | |||
|---|---|---|---|
| Loan type | Rates/fees | Repayment terms | Best for |
| Short-term business loan | Can start as low as 6%, but typically ~15% to 60%+ APR | Monthly payments, usually over a period of ~6 to 36 months | Specific, lump-sum expenses you can pay off relatively quickly, like equipment or inventory, when you need fast funding |
| Business line of credit | Can start as low as 6%, but typically ~10% to 60%+ APR | Revolving; only pay back what you use, similar to a credit card | Managing cash flow gaps, covering short-term expenses, and having access to flexible working capital |
| Invoice factoring | Usually ~0.5% to 5% per 30 days (discount fee, not APR) | Repaid through your invoice; fees also deducted when your customer pays | B2B businesses waiting on unpaid invoices and needing immediate cash flow who are willing to offload money chasing |
| Equipment financing | Can start as low as 6%, but typically ~8% to 30% APR | Monthly payments; terms typically 24 to 72 months (can extend longer for certain equipment types) | Purchasing or upgrading equipment with up to 100% financing, using the equipment as collateral |
| SBA loan (7(a), Express, Microloan) | Typically ~5.5% to 13% depending on program and market rates | Usually ~5 to 25 years (up to 10 years for working capital, up to 25 years for real estate) | Established or growth-ready businesses seeking low-interest, long-term financing for expansion, real estate, refinancing, or major investments |
| Merchant cash advance | Factor rates apply (typically 1.08% to 1.45%; varies by risk and sales volume) | Fixed percentage of daily or weekly sales (holdback) until the total repayment amount is met | Businesses with strong credit card sales needing fast, flexible funding with less emphasis on credit score |
Short-Term Business Loan
Short-term business loans are pretty much what they sound like. Lenders give them as a lump sum, and they are paid back with a set APR interest rate over a relatively short period of time, usually anywhere from six to 36 months.
They're good for covering one-time, temporary expenses. They're usually a bit easier to qualify for than long-term loans, and funding turnaround time can also be pretty quick. The payments can be larger, but the trade-off is that you pay it off faster.
Business Line of Credit
A business line of credit is similar to a credit card. It allows you to spend up to a certain amount of money on a revolving basis, and you only pay back and accrue interest on what you use in a given period.
They usually have lower interest rates than regular credit cards, and using one can also be a great way to build up your personal credit score if it's low. This type of funding is flexible, so it can be used for a variety of expenses, and you won't be charged for paying back your balance early. The main caveat is that qualifying can still be challenging, especially for higher limits, and rates can increase quickly depending on usage.
Invoice Factoring
Invoice factoring is when a business sells its unpaid invoices to a factoring company. The factoring company gives you an up-front payment and takes over the legwork of collecting payments on future invoices in exchange for a cut of them.
This is a great option if you tend to have trouble with slow-paying clients and don't mind a third party intervening in the relationship. Invoice factoring can often be one of the easiest to obtain, even with a low credit score, because eligibility is based on the strength of your invoices rather than your personal ability to repay a loan.
Equipment Financing
Equipment financing is a funding option specifically for businesses that need to purchase new equipment, from machinery to tech and vehicles. It's great if you need to replace old assets or expand your operations, but you can't quite shoulder the huge up-front cost that often comes with. This helps you spread payments over time.
The lender pays for the equipment (either directly or by reimbursing you), and you then make monthly payments (plus interest) over a set period, usually between one and six years. With this funding, the equipment itself serves as collateral, so if you default on payments, the equipment can be seized. That reduces lenders' risk, making it a good option for lower-credit borrowers.
SBA Loans
SBA loans are designed for small businesses and are backed by the Small Business Administration (SBA), a government agency that aims to expand loan access for more small businesses. The SBA guarantees part of the loan, which makes this option one of the best for low interest rates and longer repayment periods.
Those benefits also mean they're harder to qualify for. SBA loans probably have the strictest underwriting standards of this list. Lenders look for solid financials and established business history, which often includes credit. I include them because they're often considered the benchmark for affordable business financing, even though they aren't realistic for every borrower.
Merchant Cash Advance
A merchant cash advance is a type of financing in which a business receives a lump sum up front in exchange for a portion of its future sales.
After getting the cash advance, you repay a fixed percentage of your daily or weekly revenue (called a holdback) until the agreed repayment total is paid off. That total is determined by factor rates instead of traditional interest rates. For example: An advance amount of $20,000 with a factor rate of 1.3 would equal a total repayment cost of $26,000.
The main caveat is that you pay more when sales are high (and less when they're slow). But credit probably matters the least for merchant cash advances; your eligibility is based primarily on your revenue consistency and sales volume, not credit score.
Personal vs. Business Credit: What Lenders Actually Use
When we talk about “bad credit” in business lending, it usually refers to a personal credit score.
When it comes to small businesses, lenders most often rely on the owner's personal credit score to evaluate their borrowing eligibility. This is especially true for newer businesses and/or when applying for unsecured loans. From the lender's point of view, the idea is that if the business itself won't be able to pay (or put up assets), the owner would.
Business credit is different.
It doesn't have a standard score like personal credit does. Instead, it's more of a profile with a collection of scores and reports from the three main business credit bureaus. Many small businesses don't have business credit at all. A business only starts building business credit when an owner has opened accounts in the business's name, and those accounts report to the bureaus. It becomes a factor only once your company has built a financial track record of its own, so it's more of a thing for large companies and corporations.
Many lenders consider both (along with revenue, cash flow, and time in business) when making a loan decision.
Secured vs. Unsecured Loans
You might be wondering what the difference is between “unsecured” and “secured” loans. It's all about collateral.
Secured loans are backed by collateral, such as equipment, inventory, real estate, or other large assets. That means that in the event of a default (where you stop meeting or making payments), the lender has a right to take those things from your business. Collateral makes lenders more willing to lend larger amounts and to offer lower interest rates.
These types of loans are usually used for large purchases, such as the costs of an expansion project or equipment financing. Equipment financing, invoice financing (secured by receivables), and SBA loans (when collateral is available) are examples of secured loans.
Unsecured loans are not backed by collateral. For these types of funding options, eligibility and qualification rely much more heavily on your business's history and financials because there's nothing for the lender to fall back on if you fail to make payments.
Getting approved and funded can be faster for these loans, but interest rates can be higher and loan amounts can be smaller. Additionally, if you don't feel comfortable putting your assets up as collateral (or don't have any to put up to begin with), this option may be better.
Common Uses for Bad Credit Business Loans
Here are some of the most common uses for a bad credit business loan.
| Use | Why it works |
|---|---|
| Covering slow periods | Helps with cash during revenue dips so you can keep up with ongoing expenses like rent, utilities, etc. |
| Real estate (short-term deals like fix-and-flip or bridge financing) | Can give you fast access to capital for time-sensitive deals when traditional financing isn't an option |
| Inventory/supplies | You can stock up ahead of busy periods or meet demand during them without waiting for incoming cash from revenue |
| Equipment | Lets you buy or upgrade essential equipment without paying the full cost up front |
| Payroll or taxes | Helps you meet immediate obligations and/or avoid disruptions when cash is tight |
| Refinancing existing debt | You can consolidate or restructure payments to improve short-term cash flow (but it may increase the overall borrowing cost) |
How To Choose the Right Option
Still confused about which financing option would best fit your business and low-credit situation? Use this table to help think through your specific scenario.
| If you're a… | This option might be a good fit | Because… |
|---|---|---|
| Seasonal business | Business line of credit | It's a way to have flexible cash flow. You can tap it when revenue is slow and repay during peak seasons. |
| Busy restaurant or retail store | Merchant cash advance | You have steady daily sales but quick access to cash. Payments adjust based on how your business is performing in the moment. |
| Business-to-business (B2B) company with unpaid invoices | Invoice financing | You can turn your outstanding invoices into immediate cash instead of waiting months for lagging customers. |
| Equipment-heavy business (like trucking, construction, manufacturing) | Equipment financing | You can spread out big purchase costs over time, allowing you to either amp up production or replace old equipment. |
| Established business with strong financials | SBA loans | It's the most affordable option. You're more likely to get lower rates and longer repayment terms (if you can meet the stricter requirements). |
