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Last updated: 14 March 2024

Business Loans for Bad Credit

Can You Get a Business Loans for Bad Credit?

Some lenders may be reluctant to give out a business loan if you have poor credit history, and may even ask for collateral for the loan. However, there are ways to help increase your chances of getting a business loan for bad credit. The online lending industry has made it easier to get business loans for bad credit, and are more likely to approve your application than traditional lending institutions, like banks.

Generally, a credit score between 400-850 is considered a good score. However, the range of a credit score can vary from lender to lender, as they may have their own standards. The higher your credit score, the increased chances there are for you to be approved for a business loan

When looking into business loans for bad credit, there are small business loans that are available to you. One type of loan to look into would be secured loans, which may be an option for business loans for bad credit. Secured business loans are a type of commercial loan, amongst many others, that are a key source of funding for many small businesses to cover various expenses.

When you have bad credit history, it is more likely to acquire secured business loans than it is to acquire unsecured business loans. Secured business loans require collateral and if failure to pay back occurs, the lender may use your collateral to supplement any loss on their part. There are of course other alternatives available to you, where you can get different business loan options that will be the right fit.

Encouragingly, there are many options to get business loans for bad credit. For instance, if you may be looking to start a business you can then for example, consider looking into start up business loans for bad credit.

Secured Business Loan

6 Options for Getting Business Loans with Bad Credit

When applying for traditional loans from places such as banks and building societies is not successful, there are alternative options to finding funding for small businesses. The online lending industry has rapidly grown and this has created many more options and increased the chances of getting business loans for bad credit.

However, in choosing loans for bad credit, you should look into loans that will help you repair your credit history and lessen your need of applying for business loans for bad credit. You also have to look into whether you want short-term or long-term loans for bad credit.

Grants from Government

Grands From Government

Grants are a type of funding that are given by the government without any expectation of repayment. Bad credit is not an issue as the grant is not taxable. Applying for a grant is time-consuming and a complex process, therefore you have to make sure the reason for your application is justifiable. If your reason is justified, this ensures that in the future, the chances increase of receiving more grants from the government.

Contingencies made by the government may require that you check in with them and they may also put restrictions on how you can use the grant. However this would be beneficial for your business and decrease the risks of spending the grant poorly.

Business Cash Advance

Business Cash Advance

This is a cash advance given to businesses with the expectation of repayment coming from future sales. A business cash advance looks at future sales so bad credit is irrelevant to the lender.

A cash advance is very simple to apply for and is generally very easy to qualify for. After qualification, the business receives the cash very fast. A huge advantage is that the amount to pay back never increases as there is no interest and even better there are no late fees as payments are made directly from the businesses credit sales.

Guarantor Loan

Guarantor Loan

Another loan type you can get is a guarantor loan. This is a loan where you can borrow between £1,000 - £15,000 if you have a guarantor to support you and your application.

This type of loan is based on trust and most of the time your guarantor is a friend or family member. They have to agree to take on the responsibility of your loan should you be unable to make payments.

Asset Finance

Asset Finance

Asset-based finance is a cash injection based on the assets a business has, such as technology, machinery, or any other equipment. When asset-based finance is approved it can be an immediate source of financing.

The approval process is much quicker than with traditional loans. Actually obtaining the loan is also very easy, and as you gain more assets for your business, you can increase the amount.

There is great flexibility in how you spend your funds within your business operations, as long as the money is in fact spent on behalf of the business. Your credit rating also improves rapidly as you are in a revolving line of credit without gaining any debt.

Invoice Finance

Invoice Finance

Invoice financing allows a company to meet its short-term liquidity needs based on the invoices that are yet to be paid by customers. The business will receive the amount from customers at a later date.

Invoice financing provides better cash flow for your business, making it less likely for your business to run out of money. You will make less financial risks with invoice financing as you will be aware of exactly how much money you will be receiving and when you’ll be receiving it. The knowledge you have on your customer base will increase as the factoring company will do credit checks on your customer base ensuring you will always be paid.

Equity Crowdfunding

Equity Crowdfunding

Equity crowdfunding consists of people contributing towards a startup business with working capital. While there is no expectation of repayment on the business’ part, those investing will acquire a piece of your business.

The money you raise is considered ‘smart money’. This means that your investors judge, based on business trends and predictions, that your business will yield results and that they will also benefit.

There are different types of businesses such as B2B businesses and established businesses that can benefit from equity crowdfunding. You can build a relationship with your investors and this can be beneficial for the future of your business as well as in establishing a customer base.

Pros and Cons of Bad Credit Business Loans

When you are in a situation where you have bad credit yet need to apply for a business loan, you need to figure out the good and the bad aspects about the various options for business loans for bad credit. This allows you to narrow down on the type of business loan you need in order to fulfil the needs of your business.

Advantages & Disadvantages of Bad Credit Loan Options
Type of Business LoanAdvantagesDisadvantages
Grants from Government
  • Grants do not need to be repaid
  • Not taxable
  • Doesn't look at bad credit
  • Time-consuming application process
  • Strict eligibility & high competition
  • Check-in from grant giver
  • Contingencies made by grant giver
Business cash advance
  • No fixed repayment terms & no interest
  • Easier to qualify for
  • Receive cash fast
  • No collateral required
  • More expensive than a bank loan
  • Not regulated
  • Limitations may be placed
Guarantor loan
  • Higher success rate
  • Can borrow more
  • Boosts credit rating
  • Honest about financial situation
  • Affects credit rating
  • You can burn bridges
Asset finance
  • Improve credit rating
  • Less expensive & without time constraints
  • Immediate source of working capital
  • Great flexibility of spending
  • Dangerous to rely on short-term assets for long-term debt
  • Can forfeit collateral
Invoice finance
  • Positive cash flow
  • Better financial planning
  • More knowledge about customers
  • Liable for debts
  • Loss of control for debt management
  • Cost of borrowing
  • Loss of business control
Equity Crowdfunding
  • Smart money
  • Larger sums of fundraising
  • Easier investor relations
  • Establish a customer base
  • Increased transparency
  • All-or-nothing approach
  • Makes business inflexible

How Is Bad Credit Calculated?

When referring to bad credit, it is your personal credit history rather than the credit history of your business that is being evaluated. A credit history is information that is compiled from various sources including the electoral roll and court records.

The electoral roll is public and has details such as your address and who you may reside with. There can also be court records which have information about past debt problems you encountered and account information that contains information about your behaviour on loans, phone contracts, mortgages, etc.

If you have a bad credit history, then there are past payments you failed to repay on time - or at all - and other things you may have to consider. These can make it a little tricky in getting business loans for bad credit, however it is certainly not impossible.

Something else that may be a case of having a bad credit history, is that you may have too little of a credit history. You might not have had a credit card or had any credit that you’ve paid back to show lenders that you are good at making repayments. In this instance, you would then have to build a credit history by possibly taking out a business credit card from your bank.

Bad Credit Calculation

How You Can Repair Bad Credit History in 11 Steps

Although it's possible to get business loans for bad credit, you should always look to improve your credit history. Your credit history can limit your options, such as getting a mortgage, credit, or even getting a phone contract.

While of course it is possible to apply for business loans for bad credit, it will make it easier to fund your business further when you have good credit history. Here are 11 steps to repairing a bad credit history:

Repairing a bad credit history
  1. Be registered on the electoral roll if you are not already
  2. Be sure to look for any mistakes in your credit rating file
  3. Pay your bills on time
  4. Check if you are linked to anyone else’s credit rating, as it may be poor
  5. See if there is any fraudulent activity in your file
  6. If you have any court judgements concerning debt, find free debt advice
  7. If you have high levels of existing debt then eliminate this first
  8. Do not move homes a lot as lenders want to see that you have resided at the same address for long periods of time
  9. Build up both your personal bank balance and that of your business as well
  10. Keep checking your credit score
  11. Stay in business: be a consistently good business owner

Find the Right Bad Credit Loan for Your Company

Finding business loans for bad credit may require some effort, however by carefully and thoroughly researching, you will be able to find a loan for poor credit that will suit your needs and requirements. There are also business loans that you can look into that are specifically tailored, such as business loans for women.

It may be time-consuming and a long process, however having done research on bad credit business loans, all the information you find will reduce the risks of any nasty surprises such as any hidden charges or interest.

Knowing this, keep in mind that bad credit loans are very much possible to get and they can be beneficial to your business. Most importantly, they can help you in repairing your credit rating for your business thus increasing your chances of acquiring business loans like start up business loans in the future.

All content in this website is for informational purposes only and it does not constitute financial advice and/or recommendations and it should not be relied upon as such. 

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