Bad Credit Business Loans in 2024: A Comprehensive Guide


Starting or growing a business is an exciting endeavor, but it also comes with significant financial obligations and risks. While many entrepreneurs turn to traditional bank loans to access critical capital, those with less-than-stellar personal credit histories may find these conventional lending options largely unavailable.

Fortunately, there are alternative financing sources designed specifically for business owners who have experienced past credit challenges like late payments, collections, judgments, or bankruptcies. Known as “bad credit business loans,” these non-traditional loans can help get ventures off the ground or support expansion efforts, even for borrowers with credit scores well below prime levels.


Understanding Credit Scores and Their Impact on Business Loans

Before delving into specifics about bad credit business loans, it’s helpful to review some basics about credit reports and scores. Personal credit ratings, which range from 300 to 850 on the FICO scale, incorporate data from the three major credit bureaus – Equifax, Experian, and TransUnion.

Key factors in determining a credit score include payment history (35% of total score), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). Having an extensive positive payment record, low credit utilization, established credit age, and a variety of credit product experiences (e.g., credit cards, loans, mortgages) boost credit profiles.


For traditional bank loans assessed through standardized underwriting models, borrowers generally need credit scores of 680 or higher to qualify. Anything below 620 dramatically increases lending risks and interest rates in most cases. For bad credit business loans, however, different evaluation approaches that place less emphasis on personal creditworthiness are used.

Alternative lenders recognize entrepreneurs should not be denied access to capital solely due to past difficulties unrelated to their commercial ventures. Still, credit reports provide context that impacts funding decisions and pricing. The bigger the credit score, the more pleasing the loan structure tends to be – but opportunities exist even for sub-600 credit.

Determining Creditworthiness for Business Loans

Rather than credit scores alone, alternative business lenders look at a variety of additional factors to assess funding risks:

  • Business plan and financial projections – Strong documentation showing solid concepts, competitive advantages, target markets, and realistic profit/cash flow forecasts help portray feasibility.
  • Collateral – Assets pledged that can be liquidated if loans default, like equipment, vehicles, or real estate, give lenders added security. More collateral lowers rates.
  • Business financials and reports – Current income statements, balance sheets, and bank statements evidencing revenue/expenses bolster applications, as do years in operation and profitability.
  • Personal financial details – In addition to credit reports, alternative lenders review tax returns, bank statements, assets, and debts to gauge overall financial health.
  • Guarantees – Requiring personal guarantees from business owners signals commitment and willingness to use personal assets to repay loans if needed.
  • Funding need and use – Lenders ensure funds will enable legitimate operational or growth purposes rather than personal use, which risks default.

By taking a more holistic view of chances for repayment, alternative lenders open doors for business owners who traditional banks reject. Those with solid business prospects and credit scores over 580 especially, stand good chances of approval.


With creditworthiness assessed through the expanded factors above rather than credit scores alone, numerous bad credit business loan options exist to suit various situations. Here are several prominent programs to consider:

Small Business Administration (SBA) Loans

The SBA backs 7(a) and 504 loan products designed for those declined by conventional lenders due to credit issues. With government guarantees reducing risk for participating banks and non-banks alike, loans up to $5 million are available. Rates are reasonable thanks to the SBA backing, terms reach 25 years, and less than 600 credit scores can qualify.

Online Business Loans

Emerging FinTech lenders quickly process unsecured loans of $5,000-$500,000 solely via online applications. While rates average 10-20% APR, flexible structures and rapid funding within days appeal to borrowers. Credit scores as low as 550 can access these funds for any business purpose.

Merchant Cash Advances

For established firms, merchant cash advances use projected credit/debit card sales as collateral rather than business assets or personal guarantees. Funds as large as $150,000 are provided via daily loan repayments through card transactions over 9-18 months. Credit scores starting at 500 can participate.

Equipment Financing

Leveraging business equipment, from machinery to vehicles, as collateral, loans, and leasing allows owners to invest in assets while building credit profiles. Amounts from $10,000-$2 million for 2-7-year terms are available, even for sub-600 scores needing assets to operate.

Invoice Factoring

By selling unpaid invoices or receivables to factoring companies at a small discount, firms access 80% of the invoice value immediately rather than waiting 30-90 days to collect in full. No collateral is required, making this option ideal for new ventures. Minimum credit scores of 550 apply.

Bad credit business loans empower entrepreneurs to access vital financing outside traditional avenues by accepting higher risks alternative lenders are willing to absorb. Comparing programs based on individual needs ensures the best fit.

FAQ: Frequently Asked Questions

There are always questions about securing business funding while overcoming credit challenges. Here are answers to some frequently asked queries regarding bad credit business loans:

What is the average loan amount for bad credit business loans?

Most bad credit business loans range from $5,000 up to $500,000, with $50,000 being a common average amount. SBA-backed loans can reach $5 million. It depends on the lender, length of time in business, collateral, and use of funds. Most first-time applications target $10,000-$150,000.

What interest rates can I expect with a bad credit score?

Interest rates for bad credit business loans tend to range from 8-20% APR depending on risk factors like credit scores, collateral available, and loan terms. Well-established companies requesting $100,000-plus with strong collateral may see single-digit rates, while start-ups borrowing $25,000 unsecured could pay 12-18% with sub-600 credit scores. Shop rates from multiple providers.

Do I need collateral for a bad credit business loan?

While some bad credit business loans are unsecured, most lenders require some form of collateral to mitigate risk, such as business equipment, vehicles, real estate, or receivables. The more collateral offered, the larger loan sizes and better interest rates possible. Some online loans and smaller amounts may not mandate assets to be pledged.

How long will the loan approval process take?

Alternative business lenders generally aim to make funding decisions within 1-4 weeks once a fully completed application and all required documents are submitted. Online lenders can disburse funds within 3-10 business days in many cases. SBA loans take 4-6 months on average due to their thorough guaranty process and bank approvals required.

Are personal guarantees needed with bad credit business loans?

Most bad credit loans involve personal guarantees as lenders want assurance they can pursue business owners personally if loans default. This helps compensate for higher risks associated with lower credit scores. Some smaller online loans and merchant cash advances may not require personal guarantees, while SBA loans always mandate them as part of their guaranty programs.


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