If you have poor credit, consider small business loans from newer online lenders, community development financial institutions and the Small Business Administration.
Less-than-perfect credit doesn’t mean a business loan is off the table. You may have to pay a higher interest rate and fees.
No one loan type is right for every business, so carefully research and compare each loan type’s pros and cons before applying, so you don’t do more damage to your personal credit.
Lenders have been putting a tight leash on small business loans in recent years. Banks don’t seem to be ready to open the gates, either. The Federal Reserve’s 2024 Small Business Credit Survey reported that 24 percent of applicants got no funding, and 29 percent cited poor credit as the reason.
Applicants with a FICO score of 669 or below are generally considered to have “fair” or “poor” credit. If your credit score is low or your business is new, getting a loan can be a challenge, but not impossible. Look for online lenders, community development financial institutions (CDFIs) and minority depository institutions (MDIs). Also try small business loans from the Small Business Administration (SBA).
Fintechs have opened online doorways to money for businesses with shaky credit. You can find small business loans at online lenders, which tend to have less stringent requirements than brick-and-mortar banks. Some take credit scores as low as 500.
You can check for prequalification from multiple online lenders. If they don’t do a hard credit check, it shouldn’t hurt your score.
Most of the time, applying for a business loan in person involves dressing up, filling out forms and waiting in line. Applying online you can do in your pajamas. And some lenders have an automated process that can get money in your account the same or next business day after approval.
Having bad credit can mean an expensive loan. Often, you’ll pay higher interest rates and fees from an online lender than from a bank or credit union.
Many online lenders offer short-term financing with payments due daily, biweekly or weekly, which squeezes cash flow.
With no branches to support and few other services like credit counseling or account apps, online lenders have lower overhead than traditional banks.
If you fall short on the credit or cash flow fronts you may need to head over to Uncle Sam. Start by asking an SBA-approved lender whether you meet its requirements.
Microloans can provide just a little cash, but they can also be easier to get than other SBA loans. The loan amounts top out at $50,000. They work best for people starting or expanding businesses who can’t get financing from traditional banks.
A 7(a) Community Advantage loan provides up to $350,000 from lenders in underserved markets. You may qualify if your business is under two years old, is veteran-owned or is in a low-to-moderate income area.
SBA loans through banks and credit unions offer some of the best loan terms available to small business owners. They come with repayment terms up to 25 years and interest rates typically ranging from 5.82% to 16.00%.
SBA borrowers also get access to resources for starting and growing a business.
The application for these loans is typically longer than you might find at a bank, and more detailed.
Getting your hands on the money can take weeks or months, up to about 90 days. If your funding is time-sensitive, an SBA loan may not be the best option.
Community development financial institutions aim to serve disadvantaged individuals, enterprises and geographic areas that struggle to get financing from traditional sources. They include community development banks, community development credit unions, loan funds, venture capital funds and depository holding companies.
CDFIs may come through for you when traditional lenders won’t. Even if you have poor credit, you may get a competitive rate from one.
Some CDFIs provide financial coaching for borrowers. Before you borrow from a CDFI, ask the lender if it offers any training for borrowers.
Getting funding from a CDFI may take time, compared with an online lender’s fast response.
If you aren’t in the demographic a CDFI serves, you won’t be able to borrow from one.
Minority depository institutions are banks and credit unions where most of the ownership shares are held by minorities. MDIs provide financial services to veterans, women, racial minorities and those with low incomes. They can provide capital to traditionally underfunded people, but anyone can be a customer.
Many minority depository institutions exist to serve one group, such as Black, Hispanic or women business owners. If you fit, that may boost your chances of getting financing.
Some MDIs provide financial education to help customers better manage their money.
Most MDIs are based in or serve lower-income areas, mostly in urban areas. If your business is rural, you might have to drive a long way to reach one.
Minority depository institutions generally are relatively small compared with the giants of the banking industry. Even if you fit the criteria of a minority depository institution, you may have fewer loan options than at a bigger bank. MDIs may not offer online loans.
Microloans are just what they sound like: tiny loans. They typically go for less than $50,000. The SBA says the average microloan is about $13,000. These loans usually have more flexible requirements than most other loans. The loans can come from nonprofits, which can offer more flexible loan terms. Or they can be online lenders willing to lend smaller amounts than banks.
With a microloan, you usually have wide discretion over the use of the money. You may use it on almost any business expense, except paying off debt or buying real estate.
This option gives you some breathing room. With a microloan, you typically have anywhere from 6 months to seven years to repay the debt.
But don’t expect an answer on the spot. It can take up to three months to get a decision.
Some microlenders charge a fee for packaging loans. Loans of one year or less carry a 2% fee; loans longer than one year carry up to 3%.
The nonprofit lender Accion Opportunity Fund, for example, offers loans from $5,000 to $250,000. The rates start at 8.49%. You’ll need to meet other criteria, though, such as having at least $50,000 in revenue and 12 months in business.
Getting rejected for a loan can be rough, but it’s not the end of the road. Consider other ways to fund your business.
A business credit card operates like a personal card. Many business credit cards allow you to borrow up to a credit limit. As you repay the card, you free up the credit to borrow again. You pay interest on what you use, if you carry a balance. Qualifying for a small business credit card usually requires good personal credit, though you may get a card with poor credit. They’re best for short-term needs like working capital or building credit, but more costly than loans for longer-term borrowing.
Unlike the other funding sources here, grants don’t have to be repaid. They come from private groups as well as from government agencies. Grants may be tied to the industry you’re in or where you’re located. It will take some work to find one, but there’s money being given away and the terms are unbeatable.
Crowdfunding lets you raise cash from strangers, often online, with no traditional qualifications. Rather than turning to one investor for a big chunk of money, you pitch your business idea and gather the money in bits and pieces from lots of contributors. However, you may have to give up some ownership in your business or offer products or services at a discount.
Friends and family can step in, if they have money and are willing to lend to your business. But it can end friendships if payments fall behind or are never made. Get an agreement in writing. Don’t let a handshake do all the work when you borrow from family or friends.
Invoice factoring lets you sell unpaid invoices to a third party for a lump sum, typically up to 85% of their value. The buyer will collect the full amount owed from your customers, and their credit history will matter more than yours.
A merchant cash advance turns future income into cash today. It can be an expensive way to borrow. And these loans have no federal regulation. Providers often charge a “factor rate” that can equate to triple-digit APRs. Think of this as a last resort.
Rebuild Your Credit and Get Better Loan Terms
Before you find your next loan, work on getting your credit in shape. Check your credit report for errors and ask the credit bureaus to remove them, and pay down existing debt. You may even want to consider a consolidation loan. Getting your score up takes time, though, and won’t happen overnight.
Secured business credit lines and cards let you build credit while you get access to funding, and qualifying for one typically requires less than getting a business loan. Expect to put up collateral.
For some companies, an unfavorable loan offer may not be as good as no offer at all. For example, a business struggling to make ends meet and that will have a hard time repaying could be worse off after a loan. Instead, they may want to focus on building their credit and business in hopes of getting better terms in the future.
The best lender for your situation will depend on where you’re at as a business and what you want.
Can a startup with no money and bad credit still get funding? Yes. It won’t be easy, and your options will be few. But there are lenders with lower qualification criteria than you’ll find elsewhere. Some small business loan lenders will accept credit scores as low as 500.
Where do you get a small business loan with bad credit and no money? You’ll need to try lenders with lower qualifications than most banks or credit unions offer, but getting funding without money of your own may be a tall order, and it’s far from guaranteed. When you’re in a tight spot, check out microlenders, community development financial institutions and minority depository institutions. Most lenders want to see revenue of some amount. But not all. Kiva, for example, has no revenue requirement at all.
Not all loans require collateral. Securing a business loan from a traditional lender like a bank is unlikely without collateral, though still possible. Online lenders or community development financial institutions may be willing to lend, but you’ll pay more to borrow. Remember that the most important thing is being able to repay the loan, so you can rebuild your credit and get better loan terms in the future.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
