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Last Updated on April 28, 2025
Shield Funding TeamA bad credit score can make borrowing difficult for any business owner. Even if your company has strong financials, and has been in business for more than 2 years, a bad personal credit score makes getting approved for a business loan with a bank very unlikely.
In fact, borrowing has become more difficult because of the high interest rate environment today and the decreasing quality of credit in applicants. Lending guidelines continue to get stricter and it all the factors point to this trend continuing.
Shield Funding understands this lending environment better than most lenders after navigating almost every situation over the last two decades. This is why we continue to offer funding programs despite the tightness of the current lending environment. If you are an existing business owner with an average monthly revenue above 10K for the last few months, below are some of the best business funding options for bad credit applicants.
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A short term business loan, which may come packaged as working capital or business credit in some form, is a type of financing that is typically used to address immediate, temporary financial needs within a business. Unlike long term business loans, which are structured to be paid back over 5 years or more, short term business loans are designed to be repaid within a relatively brief period, usually within 1-2 years. Rates and terms on short term funding vary but interest generally ranges from 20%-60%. These loans are often used to manage cash flow fluctuations, handle emergency expenses expenses, or capitalize on sudden business opportunities.
Short term lending is often easier to offer to borrowers with bad credit for several reasons:
Lower Risk for Lenders: The short duration of the loan reduces the time period during which the lender is exposed to the risk of non-repayment. This shorter window of risk makes lenders more comfortable offering credit to those with a less favorable credit history.
Higher Interest Rates: Short term loans typically come with higher interest rates compared to long term loans. These higher rates compensate the lender for the increased risk associated with lending to individuals or businesses with bad credit.
Smaller Loan Amounts: Generally, short term loans involve smaller amounts of money than long-term loans. This smaller capital outlay reduces the lender’s potential loss if the borrower defaults, making it more feasible to lend to those with lower credit scores.
Alternative Approval Metrics: Lenders of short-term loans often rely less on traditional credit scores and more on other factors such as the current cash flow of the business or the value of specific collateral. This approach allows individuals or businesses with poor credit history to demonstrate their ability to repay in other ways.
Frequent Repayments: Short term loans often require frequent repayments (sometimes daily or weekly). This consistent repayment schedule allows lenders to more actively monitor and manage the risk of the loan.
Below you will find a variety of short term business funding options that can be a great funding solution for small to medium sized businesses that are experiencing credit problems.
A merchant cash advance is an alternative loan option if you own an existing business that has monthly revenue of 10K or more for several consecutive months. It differs compared to bank business loans because you are not actually taking a loan, you are taking a contract to sell a small percentage of future business sales in advance of that revenue. Rates on the funding comes as a factor rate which is a flat fixed fee, which generally ranges from 1.2 to 1.5 (20%-50%+).
This business loan solution is mostly reserved for business owners that cannot receive financing from banks and other traditional lending options. It can be a useful tool for short term emergency expenses as it can be funded the same day you apply. A merchant cash advance is a high interest rate sub-prime lending option and is one of the most expensive forms of business financing. It should be a last resort after all other funding channels have been exhausted.
Merchant cash advances (MCAs) can be particularly suitable for business owners with bad credit for several reasons:
Credit Score is Less Emphasized: MCA providers typically focus more on the daily revenue receipts of the business rather than the owner’s personal credit score. This makes them ideal for those who do not qualify for traditional bank loans due to poor credit history.
Based on Sales Revenue: Since MCAs are essentially an advance on future sales, providers look at the business’s sales volume rather than its credit history or the owners personal credit. This makes them ideal for businesses that have strong sales but a poor credit score.
Quick Access to Funds: The application and approval process for MCAs is definitely faster compared to traditional loans. The quick turnaround can be crucial for businesses needing immediate funding to manage cash flow or unexpected expenses.
Flexible Repayment Terms: Repayments for MCAs are typically a percentage of daily credit card sales, which means the amount paid varies with the business’s income. This flexible repayment structure can be beneficial for businesses with fluctuating sales, reducing the burden during slower periods.
No Collateral Required: Unlike many traditional loans, MCAs don’t require collateral. This feature is particularly beneficial for businesses that may not have significant assets to offer as security.
High Approval Rates: MCA providers generally have higher approval rates than traditional lenders. This is particularly advantageous for businesses that have been turned down for conventional loans due to their credit history.
Working capital loans is another type of short term financing that offers working capital for bad credit. This type of funding is not for long term asset financing but best suited for short term operating expenses such as rent, payroll, and other every day business expenses. Depending on the lender, this option also has a quick turnaround with minimal paperwork. Many non-bank lenders found online offer immediate working capital packaged as different short term loan types with interest rates of 30-50% or more, with daily or weekly payments depending on the lender and the borrower’s payment history.
Working Capital Loans can be a good funding solution for business owners with bad credit for various reasons:
Improved Cash Flow Management: Additional working capital helps in managing day-to-day operational expenses such as rent, utilities, and payroll. This is crucial for maintaining smooth operations, especially during periods of reduced business activity or handling unexpected expenses.
Opportunity for Growth and Expansion: Additional working capital can be used to invest in growth opportunities, such as expanding product lines, entering new markets, or increasing marketing efforts. An investment can lead to increased revenue and market share. This can help businesses grow regardless of bad credit.
Better Supplier Relationships: Having bad credit can make it difficult to maintain supplier relationships for various reasons. Adding working capital can help pay suppliers on time or even in advance which can lead to better relationships and possibly discounts. Better management of supplier relationships by adding capital can help businesses grow even though the business owner has poor credit.
Financial Buffer During Seasonal Fluctuations: For businesses with seasonal income, additional working capital can provide a buffer during off-peak seasons, helping to cover expenses when revenues are lower. Keeping business debt lower actually counters bad credit by improving outstanding debt ratios.
Invoice factoring can be a great business loan alternative for business owners with bad credit. With factoring, the business sells its outstanding invoices to a lender at a discount, and the credit of the invoiced customers is actually more important than the borrowing business. This arrangement allows businesses to receive immediate cash, which can be crucial for managing cash flow, rather than waiting for their customers to pay their invoices. The factoring company pays the business a significant percentage of the invoice’s value upfront, usually around 70% to 90%, and then they take the steps necessary to collect the invoice balances.
It is important to consider the potential impact on customer relationships, as the factoring company becomes responsible for collecting payments directly from the business’s customers. As long as the interaction with clients is acceptable, invoice factoring can be a great bad credit business loan for the following reasons:
Creditworthiness Based on Customers: In invoice factoring, the focus is primarily on the creditworthiness of the business’s customers rather than the business owner. Since the lender is more concerned with the customers’ ability to pay the invoices, businesses with owners who have bad credit can still access financing.
Immediate Access to Capital: Invoice factoring provides quick access to funds. Instead of waiting for customers to pay their invoices, which in some industries can be extremely long, businesses get most of the cash upfront, which is crucial for those who need immediate funding to manage cash flow, pay employees, or cover other operational expenses.
No Additional Debt Incurred: Since factoring is not a loan, it doesn’t add to a business’s debt burden. This aspect is particularly beneficial for business owners with bad credit who may be looking to avoid further impacting their credit score or taking on additional debt.
Reduction in Collection Hassles: The factoring company typically takes over the collection process, which can save time and resources for the business owner. This is especially beneficial for small businesses that may not have the capacity to manage accounts receivable effectively.
Potential for Flexible Terms: Factoring agreements can be more flexible than traditional loans, offering businesses the ability to factor only the invoices they choose, with varying terms and fees.
Equipment financing can be an great business loan alternative for business owners with poor credit history. This type of financing specifically targets the purchase or leasing of equipment necessary for the business’s operations. Many lenders will offer this type of business financing for bad credit borrower’s because it is less risky. Rates on this type of borrowing range from 10%-40% for a term of 3 to 10 years.
Here are some reasons why equipment loans can be a good bad credit business financing option:
Asset-Backed Financing: Equipment financing is a form of asset-backed lending. The equipment itself serves as collateral for the loan. This reduces the risk for the lender, making it more feasible for businesses with less-than-ideal credit scores to secure funding.
Improved Cash Flow: By financing equipment, a business can preserve its working capital for other operational expenses. This is especially beneficial for businesses that might otherwise struggle to manage cash flow due to credit constraints.
Credit Building Opportunity: Regular payments on equipment financing can help a business build or repair its credit history, potentially leading to more favorable financing options in the future.
Tax Advantages: Depending on the structure of the financing and the jurisdiction, there may be tax benefits such as deductions on interest payments or depreciation.
Flexibility: Equipment financing terms can often be tailored to the specific needs of the business, including the length of the financing period and the structure of repayments.
Quick Access to Equipment: This financing option can provide quicker access to essential equipment compared to traditional loans, which may involve a more lengthy approval process, especially for business owners with poor credit.
My Chase Loan offers a flexible loan for business owners that have bad credit and own a chase credit card. The loan rates range from 20.24% to 28.99%, and your fixed rate is based on your creditworthiness and other factors.
Here are some excellent reasons why bad credit borrowers can utilize this type of loan for a business:
No Credit Check: This funding solution is a good option for business owners with poor credit as it doesn’t require a new credit check. There is also no application process because it utilizes your existing credit.
Minimum Additional Fees: There are no origination or early payoff fees which makes this ideal when bad credit affects access to capital.
Credit Building Opportunity: Because Chase bank is a major financial institution in the baking system it reports to the credit bureaus. This can not only benefit your credit score but it can lead to additional credit options from the bank.
Tax Advantages: Because this is not a merchant cash advance and structured as a loan there can be considerable tax advantages when compared to non-loan financial products.
Square bad credit business loans can be a great option if you are business owner that has bad credit and processes sales through their system. The loan rates come as a flat rate fee, and it is based on a percentage of your sales. You can borrow up to $250,000 for up to 18 months and there is no credit check to get the business funding.
The following reasons are why bad credit borrowers can use this business loan:
No Credit Check: Square is a great funding solution for business owners with bad credit because there is no credit check. Your offer amount is based on your sales in the business and not credit history. However, for this reason it also does not improve your credit.
Sales Based Repayment: The repayment structure is linked to the business’s sales volume, offering more flexibility during periods of lower revenue. For example, if you have a day with no revenue you will not have a payment because the payback is based on a percentage of sales.
Quick Access to Funds: Once approved, the funds are deposited swiftly, either instantly into a Square checking account or within a few days for external bank accounts.
Business Focused Eligibility Criteria: Square evaluates factors such as processing volume, payment frequency, and customer base, which can be favorable for businesses with strong operational metrics but a poor credit history.
Paypal offers working capital funding for up to $250,000. There is one fixed fee for borrowing and that payment is based on a percentage of your sales. You can choose a term that suits your business, with automatic weekly payments that make the payback process easy. The main requirements are to be nine months in business, annual revenue of at least $33,300, and a PayPal Business account is required.
Why It’s Good for Bad Credit Applicants:
No Emphasis on Credit Score: There is no credit check because the loan is based on your account history.
Quick Eligibility Check: Applicants can see if they’re eligible without affecting their credit score, which is beneficial for those with poor credit.
Based on Business Financials: Instead of solely focusing on credit history, PayPal considers the business’s revenue and history, which can be advantageous for businesses with strong financials but bad credit.
Automatic Repayment: The weekly repayment structure is tied to the business account which can help manage cash flow, something that is very helpful when credit is hard to come by.
When banks were the only option for business loans, having bad credit eliminated that possibility. However, today because of technology and improvements in underwriting it is easier to receive a business loan with bad credit. And just because you have bad credit, that does not mean you have to get the worst terms on your funding. There are many steps you can take to improve both the terms of your business loan as well as the approval amounts. Understanding what bad credit is, what lenders look for, and some insight into the underwriting process will help you improve your fundability.
There are two types of credit in the business world, a business owner’s personal credit history as well as the credit history of the business. Very few lenders outside of business credit card providers will look at your business credit score, their concern is the personal score. A bad credit score, typically considered to be a score below 580 on the FICO scale (which ranges from 300 to 850), signifies to lenders that an individual or their business is a high-risk borrower. The score is based on past financial behaviors such as late payments, defaults, high credit utilization, bankruptcy, or a short credit history. A lower credit score is seen as an indicator of high risk or a possible default.
In the context of business loans, credit scores are crucial as they are an integral part of the approval process. For example, a bank with not approve a business loan if you have bad credit, no matter how good your business financials look. However, bad credit business loan providers will approve a loan for a bad credit borrowers if the business has consistent revenue, but the amount of the approval, the rate you will pay, the frequency of payments, and the duration of the business loan will be adversely impacted the lower the credit score. For this reason, where you are on the credit score range matters.
Below is a detailed explanation of how lenders view bad credit based on the actual score, as well as what indicators make up that score. It is important to understand these numbers to better prepare in the business loan application process.
FICO Score Ranges:
A FICO score is determined by the following factors:
When analyzing an application to see if an individual is eligible for an approval lenders look at:
Every lender has a different set of requirements in their underwriting department, however, there are some common requirements from most of the lenders online. Here is the basic list of requirements you will need to get bad credit business funding:
Improving your personal credit score can significantly improve the rates and terms of your bad credit business loan. As you pay back your loans and build your score you can start to move onto more traditional financing with banks and dramatically lower the cost of financing your business operations.
Steps to Improve Credit Fast:
It is no secret that bank lending offers the best rates and terms for business loans. So your first stop if you can wait through the application process should be a bank. If you do not have time or do not meet the requirements for a bank loan then online lenders are a reliable next option. Compare reviews, analyze rates and terms, and apply with a lender that is best for you.
A good substitute for bad credit business loans are personal loans. This financial solution is your best bet for a startup business loan. You do not need an operating business or any of the general requirements of business funding. The main issue with this as an alternative is that you will likely need a credit score above 600. However, you can utilize a co-signer with some personal lenders which is another plus for this option.
A grant is a gift given by a person, organization, or business. It is often given for a particular purpose. Some example purposes are: grants to support women or refugee-owned businesses, to promote growth in particular industries, or to incentivize entrepreneurs to open businesses in certain geographic areas. Grant applications often feature deadlines, and then close for a period of time. Their qualification requirements may not include your credit score, but usually have a long list of document requirements. Begin your research at the state level. Also checkout SBA Grants and and U.S. Chamber of Commerce.
Obtaining a loan from family or friends can always be a better option than high interest business loans. It is worth mentioning because it is an option that should at least be explored before applying for much more expensive funding options that can put unnecessary stress on cash flow.
If offering part of the business is an option than pursuing investors can be a great idea. Investors not only bring very important funding, but they also offer some potential plusses. Investors will work just as hard to improving the business as they will have a stake in the success of the company. Often these investors will bring their own assets and networking capabilities to improve several areas of the business. It can be a win win situation and should be explored. You can start with Golden Seeds and 37 Angels.
No. You can utilize the funding however it is needed.
Shield Funding has been assisting business owners with securing working capital for 2 decades. If you need any help applying for bad credit business loans or just have some general funding questions and want to speak with a loan expert feel free to reach out to us on our contact page.
