Where can I get a small business loan with bad credit?

You don’t have to go straight to a bank when you need a small-business loan with bad credit. Other options include online small-business loans for bad credit, SBA loans and CDFIs.

Some lenders offer small-business loans specifically to small-business owners with low credit scores, but interest rates are usually high.

Small-business lenders review loan applications by different criteria and small-business loans have pros and cons. When you look for loans with poor credit, you need to find a loan that has a relatively forgiving qualification process and still fits your small-business needs.

Lending to small firms has gotten increasingly tight, the Federal Reserve says. In a 2024 Fed survey, 24% of small-business applicants got no funding. And 29% of those applicants blamed weak credit.

Small-business Loan Options

Before you apply for a small-business loan with bad credit, you’ll want to determine whether you have “bad” credit. In lending, low credit usually means a FICO score of 669 or lower. Here are small-business loan options if you have fair or bad credit: online lenders, SBA lenders, CDFIs and MDIs.

If a traditional lender sees your score and dismisses you out of hand, try an online lender that makes small-business loans. These fintech companies work online only, and their standards are usually looser than banks’. Some will accept FICO scores as low as 500.

Once you’ve narrowed down the field of lenders, prequalify if they offer it. That way you can compare prices without triggering a formal credit check.

The main reason to go with an online lender is speed. Many in this group can let you apply in minutes online. Some online lenders boast about funding same day or next business day after you get approved.

Several also accept borrowers who’ve been in business for less time.

On the flip side, online lenders often charge higher rates and fees than banks or credit unions do.

Also, some online lenders offer only short-term loans, and the payments can be daily or weekly instead of monthly. This kind of schedule can be hard on cash flow.

Online lenders usually don’t have lots of extra services (a branch network, credit advice or loan apps). They have overhead, yes, but the lack of branches and extra services means that they keep overhead lower.

If you’re unable to get approval from online lenders, you can try for a Small Business Administration loan. You’ll need to apply with an SBA lender in the SBA’s database. Each lender sets its own credit criteria, and some approve bad-credit borrowers.

SBA microloans are like other SBA loans, but with looser eligibility standards. Maximums are smaller, with a $50,000 limit, but the structure may suit struggling businesses and cash-poor startups.

Community Advantage lenders - a special kind of SBA 7(a) lender - focus on low-to-moderate income, veteran-owned and underserved markets. Loans go up to $350,000. If you’re a new small business with credit issues, you may be a candidate for SBA Community Advantage loans.

On the upside, SBA loans are appealing to many for a few key reasons: You’ll see SBA loan rates and terms that are competitive. For example, SBA 7(a) loans can have rates of 5.82% to 16%. And the loan repayment term can stretch to 25 years.

SBA loans also come with resources for new business owners. All that can be worth the red tape involved.

The application is long and cumbersome, and it’s not unusual to need more documentation than a conventional lender.

Applying with an SBA lender is typically a longer process than other loans. The whole process can take weeks or months, up to about 90 days.

CDFIs - credit unions, banks, loan funds, venture capital funds and even depository holding companies - are designed to serve communities typically shut out of traditional lending. CDFIs do what other lenders don’t: They’re there to help your business if you’ve had trouble getting traditional funding, have weak credit or aren’t part of the economy’s mainstream.

On the plus side, CDFI loan rates can be competitive and even small businesses with poor credit may qualify.

If you want help with budgeting and cash flow, CDFIs can help you there, too. Many offer small-business financial education classes.

On the minus side, CDFI loans can take weeks to get funded, versus hours or days for an online lender.

Minority Depository Institutions - banks or credit unions that are majority-owned by minority groups and that serve women, veterans, people of color or other disadvantaged groups - are a financial resource for small-business owners looking for loans and expertise. They’re open to all small-business owners, not just those from the minority group.

On the upside, MDIs offer loans tailored to their group of owners, so they may fit better than a conventional lender would. Some MDIs were specifically set up to serve Hispanic Americans.

Other good reasons to consider MDIs: Several offer classes on financial literacy, a hidden benefit for small-business owners who need help managing their money.

MDIs also may be hard to find. MDIs tend to be in large cities and underserved communities. So small-business owners who are outside those areas may have trouble finding one.

Downside with MDIs is that they may be small, so they can’t lend as much as large banks can. They may have fewer branches or financial products than megabanks would. Some might not offer online loans.

Microloans are usually for $500 to $50,000. (SBA microloans average about $13,000.) They’re for small-business owners who can’t qualify for traditional business loans and come from nonprofits, alternative lenders and online lenders. Nonprofits and online lenders are usually the best source. If you’ve had trouble getting approved elsewhere, microloans may help you make it over the hump.

Microloan perk: You can use the cash for just about anything, but you can’t use a microloan to pay off debt or buy real estate.

Most lenders allow you to repay within six months to seven years.

If you’re in a hurry, microloans may not help. It can take as long as three months to get an approval.

One drawback with microloans: On top of interest and fees, you might pay a “packaging fee” of 2% on loans of a year or less, up to 3% on longer loans.

Accion Opportunity Fund, for example, is a nonprofit lender whose loans range from $5,000 to $250,000 at rates starting at 8.49%. The organization requires that borrowers are operational for 12 months and have at least $50,000 in annual revenue.

Raise Cash Without a Loan

A loan denial isn’t the end of your options. Don’t let your credit report hold you back.

With a little planning, you can raise cash without a loan.

Business credit cards are a common emergency stopgap for small-business owners. You can borrow up to a credit limit. As you pay your balance, your credit is available again. You’ll only pay interest on what you spend, not a loan’s fixed amount. Most require strong credit, but there are some that don’t require a high score. The interest can be steep, so cards may not be great for long-term borrowing.

If you have little money and need a boost, you may qualify for a grant. A grant is free cash that you don’t need to repay. Some grants come from government, some from businesses or private groups. Some grants are intended for certain cities or industries.

A third option is crowdfunding, which involves raising money from individual backers who often invest small amounts, often on internet platforms. You don’t have to qualify in a conventional way. Campaigns may give backers company perks, future products or ownership shares in return for money.

Another option is borrowing from friends and family. Ask only people who can spare it. While informal, though, make the arrangement formal. You’ll want to put the terms in writing to avoid misunderstandings and ill will later.

With invoice factoring, you sell your unpaid invoices to a third party at a discount, then the factor collects on the debt from your customer. The factor is chiefly concerned with your customers’ credit and repayment history, so this option could appeal to small-business owners with bad credit. You’ll typically get up to 85% of the invoice value.

A merchant cash advance is essentially an advance on future revenue. The lender issues you a lump sum. On the downside, merchant cash advances are expensive, with rates that can amount to triple-digit APRs. They aren’t federally regulated. It’s something to consider when all other sources have failed.

Raise Your Credit Score

To secure the best rates and terms, you’ll want to correct any errors and raise your credit score. If you don’t need a loan immediately, you might want to dispute mistakes on your credit report. If you’re carrying too much debt, see if you can pay down balances on some credit accounts. You might also be able to raise your score by consolidating debt into one loan.

To build your business credit, consider starting small. If you have a personal credit problem, you can still develop your business credit. It starts with a secured business credit card or a secured credit line. You deposit money or collateral with the lender to back the card. These cards are designed to build your credit, and qualifying is easier.

Not every lender will be a good fit for your business. You may be tempted to take out any loan, but it may hurt more if you can’t afford the payments. Falling behind on payments can damage your credit rating, hurt your chances of a loan later and even ruin relationships with backers or family. You may be better off repairing your credit first and qualifying for a better deal later.

Take the time to explore your options and the pluses and minuses of each. Lenders are scrutinizing your credit, and you should do the same for them. Compare their prices and terms.

If you’re a startup with little to no cash and bad credit, you have options. Some lenders accept credit scores as low as 500. So it’s possible to qualify for a bad credit business loan.

It can be a struggle. Most lenders want to see that you have revenue, but a few lenders, including online lenders, microlenders, CDFIs and MDIs, accept borrowers with low credit scores. Kiva does not require you to have revenues to qualify for a loan.

Getting a loan with no collateral is tough, especially at a traditional lender. Online lenders and CDFIs may be a better bet. But repaying your loans on time can raise your credit, so it may be worth it. However, be sure you can afford the monthly payments. But if you fall behind, your credit may take a hit.