Yes, but your options are narrower and more expensive
You can get a small business loan with bad credit, but lenders will charge you higher interest rates and require more collateral or a personal may provide. Banks rarely lend to businesses with owners who have credit scores below 620, so you will likely need to look at alternative lenders, the SBA loan programs that accept lower scores, or non-traditional funding sources like equipment financing or merchant cash advances.
The cost of borrowing with bad credit is real. A traditional bank might offer a five-year term loan at 6 percent interest; the same loan from an alternative lender might cost 10 to 18 percent. Over five years, that difference adds thousands of dollars to what you repay. Before you borrow, calculate whether the loan will actually help your business grow enough to cover that extra cost.
Key Takeaways
- SBA 7(a) loans and SBA Microloans accept credit scores as low as 580 to 620, while most traditional banks require 680 or higher.
- Alternative lenders like online platforms and credit unions often have lower credit score requirements than banks, but charge 10 to 18 percent interest or higher.
- Collateral, a personal may provide, or a co-signer with better credit can offset a low credit score and lower your interest rate.
- Your business revenue and cash flow matter more to some lenders than your personal credit score, especially if your business is profitable.
- Equipment financing and invoice financing let you borrow against business assets rather than your credit history.
SBA loans that work with lower credit scores
The Small Business Administration runs two loan programs that explicitly accept borrowers with credit scores below what traditional banks require. The SBA 7(a) loan is the most common; most lenders in this program will work with scores around 620, though some go as low as 580. The SBA Microloan program, which caps loans at $50,000, often accepts scores in the 580 to 620 range and focuses on cash flow and business viability rather than credit history alone.
Both programs require you to work through an SBA-approved lender — you cannot borrow directly from the SBA. The SBA guarantees a portion of the loan (typically 75 to 85 percent), which means the lender takes less risk and can afford to lend to borrowers with weaker credit. You will still pay interest and fees, and you will still need to show that your business can repay the loan, but the credit score bar is lower than a conventional bank loan.
The trade-off is speed and simplicity. SBA loans take longer to process — typically 30 to 90 days — and require more paperwork. You will need to submit personal and business tax returns, a business plan, a personal financial statement, and proof that you have tried to get a conventional loan first (for some programs). If your business is new or your credit is very poor, an SBA loan may still be your most affordable option.
Alternative lenders and online platforms
Online lenders and alternative financing companies often advertise that they work with bad credit. Many of them do, but the cost is high. Interest rates typically range from 10 to 18 percent, and some go higher. These lenders approve faster than banks — sometimes in days — and require less documentation, but they are betting on your business revenue, not your creditworthiness.
Online lenders look at your business bank statements, sales history, and cash flow. If your business is profitable and has been operating for at least a year, you may be able to borrow even with a credit score below 600. The catch is that they often require a personal may provide, which means you are personally liable if the business cannot repay. They may also place a lien on your business assets or require access to your business bank account to collect payments automatically.
Credit unions are another option. Many credit unions have more flexible lending standards than banks and may work with you if you are a member. Credit union rates are usually lower than online lenders but higher than SBA loans. If you belong to a credit union, call and ask whether they have a small business lending program and what credit score they require.
What lenders look at besides your credit score
Your credit score is one number, and lenders know it does not tell the whole story. If your business is profitable and has been operating for two or more years, many lenders will overlook a lower credit score. They want to see consistent revenue, positive cash flow, and a clear path to repaying the loan.
Collateral reduces a lender's risk and can lower your interest rate. If you own equipment, inventory, real estate, or a vehicle, you can pledge it as security for the loan. If you default, the lender can seize the collateral to recover their money. Offering collateral tells the lender you are confident in your ability to repay and that you have skin in the game.
A personal may provide means you are personally responsible for repaying the loan if your business cannot. This sounds bad, but it is standard for small business loans and shows the lender you are committed. A co-signer with better credit can also help — if you have a family member or business partner with a higher credit score willing to co-sign, some lenders will approve you at a better rate.
Non-loan funding sources that bypass credit checks
Equipment financing lets you borrow money to buy specific equipment — machinery, vehicles, computers — and the equipment itself serves as collateral. Because the lender can repossess the equipment if you do not pay, they care less about your credit score. Equipment financing is common in manufacturing, construction, and service businesses.
Invoice financing (also called factoring) lets you borrow against invoices your customers owe you. You sell the invoice to a financing company at a discount, and they collect payment from your customer. This works if your business has customers who pay on net-30 or net-60 terms. It is expensive — you typically give up 2 to 5 percent of the invoice value — but it does not depend on your credit score.
Merchant cash advances are a short-term loan repaid through a percentage of your daily credit card sales. If your business takes a lot of card payments, this can work, but the cost is very high — effective interest rates often exceed 40 percent. Use this only if you need cash urgently and have no other option.
Steps to improve your chances of approval
Before you explore, pull your credit report from all three bureaus — Equifax, Experian, and TransUnion — and look for errors. You can get a free report at annualcreditreport.com. If you find mistakes, dispute them with the bureau. Correcting errors can raise your score by 50 to 100 points.
Pay down personal credit card balances if you can. Lenders look at your credit utilization ratio — how much of your available credit you are using. If you are using more than 30 percent of your available credit, paying down balances will improve your score and show lenders you are managing debt responsibly.
Gather your business documents now. Have at least two years of business tax returns, three months of recent business bank statements, a current personal financial statement, and a straightforward one-page business plan ready. The more organized you are, the faster the process moves and the more seriously lenders take your process.
If your business is very new (less than one year old), consider waiting until you have a full year of tax returns and bank statements. Many lenders require this, and having it will open more doors and lower your rates.
What to avoid when borrowing with bad credit
Predatory lenders target borrowers with bad credit. Watch out for lenders who may provide approval without looking at your financials, charge upfront fees before you receive any money, or pressure you to sign documents you do not understand. Legitimate lenders do not may provide approval, do not charge upfront fees, and will explain all terms clearly.
Avoid taking on more debt than your business can handle. Just because a lender will give you $50,000 does not mean you should borrow it. Calculate your monthly debt payment and make sure your business revenue can cover it plus operating expenses and your own salary. Many small businesses fail because owners borrowed too much.
Do not explore to multiple lenders at once. Each process triggers a hard inquiry on your credit report, and multiple inquiries in a short time can lower your score further. explore to one lender, wait for a decision, and move to the next if you are declined.
Frequently Asked Questions
What credit score do I need for an SBA loan?
Most SBA 7(a) lenders require a credit score around 620, though some will go as low as 580. SBA Microloans often accept scores in the 580 to 620 range. The exact requirement varies by lender, so call several SBA-approved lenders in your area to ask about their minimum score.
Will a co-signer help me get approved?
Yes. A co-signer with good credit and a stable income can help you get approved and may lower your interest rate. The co-signer is personally liable for the loan if you default, so make sure they understand the commitment before they sign.
How long does it take to get approved for a small business loan with bad credit?
Online lenders and alternative lenders can approve in days to a week. SBA loans typically take 30 to 90 days because they require more documentation and the SBA must review the process. Traditional banks usually take two to four weeks.
Can I get a small business loan if my business is less than one year old?
It is harder but possible. Some online lenders and alternative lenders will work with newer businesses if you have strong personal credit or significant collateral. SBA loans usually require at least one year of business tax returns, so you would need to wait or explore through an alternative lender.
What is the difference between a personal loan and a small business loan?
A personal loan is based on your personal credit and income; a small business loan is based on your business revenue and viability. Personal loans are faster and easier to get but usually have lower limits and higher interest rates. Business loans are larger but require more documentation and take longer.