Getting an SBA loan with bad credit will be difficult, but it’s not impossible. In general, your chances will come down to your credit score, the type of SBA loan you’re seeking, the individual lender you’re dealing with, and other factors.
SBA Microloan Program
If you have a bad credit score, the only type of SBA loan that realistically you might qualify for is the microloan. Your chances of approval for other SBA loans can rise if you’re able to offer collateral, raise your score and present a strong business plan.
Each borrower, and type of loan, is unique, so minimum credit scores can vary. That said, you should plan on a minimum credit score of roughly 620 to 650. A score below 630 is considered “bad” by NerdWallet.
The SBA does not set a minimum credit score for getting an SBA loan. It’ll leave those decisions to the individual lender.
Generally, microloans have the lowest minimum credit score requirements of SBA loans.
Microloans can be used for buying inventory, equipment and furniture. A microloan is a loan up to $50,000. The average loan in fiscal year 2024 was $16,121.
Your best bet to find a microlender is on the SBA website, which lists approved lenders by state.
Your personal credit score is based on how you’ve handled debt in the past. Lenders generally use your personal credit score when they evaluate you for a loan from the SBA or any other source. A higher score suggests you are likely to make your payments and repay debt on time.
With a higher score, you’ll be more likely to qualify for a loan. If you do qualify, though, you’ll generally get offered a lower interest rate and better terms, such as longer repayment periods.
A lower score means you are considered more risky, so it can be tougher to get approved for a business loan. Few lenders might be willing to accept your application.
The U.S. Code of Federal Regulations says that if your lender or certified development company (CDC) is looking into your creditworthiness, it may consider things like collateral, equity, cash flow, business earnings and credit score. Your credit score might be less than optimal, but it’s just one factor the lender considers in reviewing your loan application.
The stronger your business application, the more it might balance out your lower-than-ideal credit score.
Increase Your Chances
Several steps can increase your chances of getting a business loan with a low credit score.
Collateral, such as stock, real estate or accounts receivable, is an asset you own and that the lender can legally seize to cover losses in case you default. Most SBA lenders require some form of collateral, and they prefer valuable assets that are easy to sell quickly.
A strong business plan can give a lender confidence in your ability to manage a business and repay the debt. Many lenders require such a plan when applying for a loan. A great business plan can’t overcome everything in your loan application, but it can go a long way in helping persuade a lender that your company is a good risk.
A cosigner agrees to repay the debt if you fail to do so. The stronger the credit history of the cosigner, the better chance you have to qualify for a loan. It might make a lender more willing to issue a loan if they think they have extra security.
Your odds of landing an SBA loan are highest if you can raise your score. Building a high score takes time.
If you have time to wait for your score to rise, it might be worth waiting on a loan until you’ve raised your score.
You can improve your score by paying off or down your debts. Keeping your balance low is one of the fastest ways to improve your score. That lowers your credit utilization rate, the share of available credit you’re using on open lines, such as a personal credit card.
If you have a credit card, call the issuer and ask for a higher limit. A higher credit limit raises the amount of credit you have access to, which lowers your utilization rate. But don’t use more credit.
Ask a close friend or family member if you can be an authorized user on their account. This can give your score a lift if that person has excellent credit. You don’t even have to use the account. The main credit cardholder should be a trusted person with a high credit score.
You can order your credit reports from annualcreditreport.com for free and do a check for errors and other problems. If you spot an error, like a payment reported as missed that you actually paid, contact the credit reporting agency. Removing incorrect items from your report can boost your score quickly.
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.
