How to Get a Small-Business Loan — Even With Bad Credit

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Getting a small-business loan when you have less-than-perfect credit can seem like a Sisyphean task, especially in today’s economic climate where banks are unwilling to loan to any company without an excellent credit score. But your company’s poor credit doesn’t have to keep you from getting the small-business funding you need to survive, thrive and rebuild your credit. There are alternatives to traditional bank loans that can help you get the financial backing your business needs.

If you’re looking for a bad credit small-business loan, consider a merchant cash advance, a microloan or a small-business credit card. More than half of all entrepreneurs get help from family or friends to finance their businesses, so this could be an option if you know someone willing to invest in your business. Other options include collateral loans and cosigned loans.

Merchant Cash Advance

A merchant cash advance allows you to open a line of unsecured business credit without having perfect credit or collateral. You promise the lender a portion of your future profits from credit card sales. A merchant cash advance allows you to get the money you need quickly and easily compared to a traditional bank loan — some merchant cash advance lenders will process your application and transfer your money in a few days or less. Fund your business’s expansion, equipment purchase, payroll or other needs and pay back the balance from your future profits without interrupting cash flow.


Microloans are small loans intended to help startups, small businesses owned by minorities and women, or businesses located in Empowerment Zones. If your business fits into one of these categories, you may get a microloan even if you have bad or no credit. Credit requirements for these types of loans are generally less stringent than for traditional bank business loans.

Private Loans

Over 50 percent of small-business owners get some or all of the funding they need from friends, relatives and other private investors. Attract investors by offering an ownership share in your business — when your business becomes successful, you can purchase this share back, if you want.

It’s typically easier to get small-business loans from private investors, especially when they’re people who know and care about you, because they’ll take your character and business concept — not just your credit score — into account when they make the decision to finance your business. If you use a loan management company, repayment of these private loans will be reported to the three major credit bureaus so your payments can go toward rebuilding your credit history.

Collateral and Co-Signed Loans

If you have collateral, you can use it to take out a loan for business funding. Collateral loans typically offer reasonable interest rates, even for borrowers with bad credit. This is because they offer some insurance for the bank if you don’t repay. Of course, you’ll be taking a risk by putting your property on the line.

If you have a friend or relative with good credit who’s willing to help you by cosigning for a loan, this is an excellent option. Having a cosigner will allow you to get a lower interest rate on a traditional loan and will allow you to rebuild your credit score. Your cosigner will be on the hook for the payments if you default, so make those payments on time.

Business Credit Card

Even with less-than-perfect credit, you can get business financing and begin to repair your credit history with a business credit card. Pay your credit card off in full each month to avoid interest rates; always make payments on time to repair your credit rating.

If you have bad credit and need business financing, you may be tempted to open several business credit card accounts at once to secure more cash. Don’t succumb to this temptation. Opening multiple credit accounts at once looks irresponsible and can actually worsen your credit. Stick to one business credit card ­— and pay it off completely every month if possible. If you can’t pay it off in full every month, don’t just make the monthly minimum payment; paying extra each month will help you pay off your credit card debt faster and save you interest on payments.

When you have bad credit, getting small-business financing can seem daunting. There are many alternative options to bank business loans, like merchant cash advances, business credit cards, collateral and cosigned loans, and private loans and microloans. By exploring some of these options, you’re sure to find the funding you need.

About the Author: Contributing blogger Maddie Rockwell is a small-business owner who recently  Advance Fund Networks to secure funding for her business, with great success.

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