Business Loans for Bad Credit

The primary advantage of small business loans for bad credit is their accessibility. A poor credit score won’t prevent approval as long as your business has steady cash flow. Additionally, strong sales can mitigate the impact of a bad personal credit score on the loan’s cost and terms.

Borrowers with bad credit can also use these funds to pay off existing debts, a common cause of poor credit. Many traditional lenders do not allow borrowers to use funds for this purpose or approve those with significant existing debt.

Another benefit is establishing a track record of timely payments. While not every bad credit business loan will affect your personal credit score, proving you can pay off a business loan on time increases your chances of qualifying for a second, larger round of funding with better terms and a lower interest rate.

Think of this type of small business loan or line of credit as a stepping stone toward achieving your long-term goals. Less-than-perfect credit doesn’t mean your goals are unattainable; it just means you’ll have to wait a little longer to reach them.

These are the best bad credit business loans available:

• Business Line of Credit
• Equipment Financing
• Merchant Cash Advance
• Working Capital Loans
• Revenue-Based Financing
• Invoice/Receivables Factoring

The only small business loans offered by QnE Capital that aren’t on this list are Business Term Loans and Small Business Administration (SBA) Loans. This is because, once these loans lose their traditionally high borrowing amounts, low interest rates, and long terms, they essentially become short-term loans or products similar to invoice financing and merchant cash advances. SBA and term loans are considered the best small business loans, carrying the lowest interest rates, and are only available to small business owners with high personal credit scores.

Unlike SBA or term loans, all of the options on this bad credit list can be repaid quickly and offer modest funding amounts. Small business owners can choose from various alternative lenders and financing options, rather than being forced into fixed monthly payments. Even short-term business loans can be repaid weekly, bi-weekly, or monthly.

Some bad credit small business loans emphasize cash flow and sales volume rather than credit scores. For example, the borrowing amount for a merchant cash advance is based entirely on monthly debit and credit card sales. With accounts receivable factoring and invoice financing, your personal credit score is largely irrelevant. Revenue-based business loans have similar credit requirements to merchant cash advances, except the loan amount is based on total monthly sales, not just card transactions.

Business lines of credit are also available with poor credit scores, though the terms won’t be as favorable as those from your local bank. Small business owners with poor or limited credit can still access revolving lines of credit if that’s the best bad credit product for their needs.

Although business equipment financing carries the same repayment structure as a term loan, the desired equipment serves as collateral. This reduces the heightened risk associated with a poor credit history.

Bad credit business loans come with higher costs and lower loan amounts, a natural consequence of bad credit. Alternative lenders set lower borrowing amounts, high rates, and shorter terms to mitigate the increased repayment risk.

Another potential drawback is choosing the wrong loan product or repayment frequency. Bad credit business loans should offer an easy repayment term, but each business has different cash flow cycles. What’s manageable for one business might strain another. If you select the wrong loan product, the high rates and repayment terms (e.g., daily, weekly, bi-weekly) could negatively impact your cash flow. This pressure might lead you to make a rushed and potentially poor financing decision when options are limited.

PROS

• Quick application process
• Unsecured programs available
• Less than perfect credit score accepted
• Use for various business purposes

CONS

• Higher rates and fees than traditional bank loans
• Many lenders may require collateral
• May require automatic withdrawal repayment

After assessing your business’s financial health, the lender may determine that approving a business loan would harm your cash flow. In this case, we might recommend alternative financing tools, such as a business credit card or personal loan. These options are typically easier to qualify for than business loans. While a business credit card may not provide the credit limit you need immediately, it can be a valuable tool for improving your credit scores. Using business credit cards regularly and making consistent payments will strengthen your business credit history and help raise your credit scores.

Credit unions are another excellent option to consider. Though they may not always offer the assistance needed, it’s worth exploring the loan offers they can provide.