You may think it is impossible to get business loans with bad credit. In truth, it is just impossible to do so from traditional banks without some sort of guarantee. There are other options however.
Is It Possible to Get Business Loans with Bad Credit?
For example, the government guarantees loans from traditional banks through The Small Business Administration, or SBA. This government guarantee makes it easier to get loans with lower credit scores than would normally be acceptable.
Business Loans with Bad Credit: SBA Loans
The key is, how bad is “bad” credit. Generally speaking, you can qualify for a loan most anywhere with a credit score over 730. However, your interest rates may leave a lot to be desired. If your credit score is less than that, but above 650, you may qualify for one of these SBA loans programs.
7(a) Loans
This most popular SBA loan program offers federally funded term loans up to $5 million. In addition, the funds can be used for expansion, purchasing equipment, working capital and more. Banks, credit unions, and other specialized institutions process these loans and disburse the funds. What does that mean? It means that you apply with a traditional lender, but it isn’t exactly a traditional loan.
The minimum credit score to qualify is 680. Also, there is a required down payment of at least 10% for the purchase of a business, commercial real estate, or equipment. Lastly, the minimum time in business is 2 years. In the case of startups, business experience equivalent to two years will work.
Funds are available for a wide variety of projects, from working capital to refinancing debt. You can even buy a new business or real estate.
504 Loans
These loans are available up to $5 million. You can use the funds to buy machinery, facilities, or land. Typically, these are expansion loans. They especially work well for commercial real estate purchases.
Terms for 504 Loans range from 10 to 20 years. Unfortunately, funding is slow. It can take from 30 to 90 days. They require a minimum credit score of 680, and they use the asset the loan is financing as collateral. Furthermore, there is a down payment requirement of 10%. This can increase to 15% for a new business.
Like 7 (a) loans, you must be in business for at least 2 years, or management must have equivalent experience if the business is a startup.
Microloans
Microloans go up to $50,000. They work well for starting a business, purchasing equipment, buying inventory, or as working capital. Community based non-profits administer microloan programs as intermediaries. Unlike most other SBA loans, financing comes directly from the Small Business Administration.
They can take upwards of 90 days to fund. The minimum credit score for microloans is 640, and collateral and down payment requirements vary by lender.
SBA Disaster Loans
As a general rule, disaster loans go up to $2 million. However, there are tons of changes in the program right now due to the need for COVID-19 relief. These loans are also processed directly through the SBA rather than through partner lenders. They are for small-business owners that have been affected by natural disasters, and the COVID-19 pandemic has been deemed to qualify as a natural disaster. Terms go up to 30 years. The maximum interest rate is 4%, and you can apply for disaster loans directly at SBA.gov.
The minimum credit score for these loans is 660. Additionally, collateral is necessary if the loan goes over a certain amount. That amount is usually $25,000. For a military economic injury disaster, the amount that requires collateral is $50,000. Either way, a down payment is not necessary.
SBA Express Loans
The max amount for these loans is $350,000. Terms range from 5 to 25 years. To qualify, your credit score must be above 680. Also, you must have a debt to service ratio of 1.1 or higher. If the loan is greater than $25,000, collateral may be necessary depending on the lender.
As the name suggests, you get funds from express loans much faster. In fact, the SBA takes 36 hours or less to give a decision. Not only that, but the necessary paperwork for application is less also. This makes express loans a great option for working capital, among other things, if you qualify.
SBA CAPLine
There are 4 distinct CAPLine programs that differ mostly in the expenses they can fund. Each of them carries a maximum amount of $5 million. In addition, the interest rate for each range from 7% to 10%. Like many of the others, funding can take 45 to 90 days.
The four different programs are:
- Seasonal CAPLines
- Contract CAPLines
- Builder’s CAPLines
- Working Capital CAPLines
For these, the minimum credit score to qualify is 680. However, there is no minimum time in business requirement unless you are getting a seasonal CAPLine. That one carries a one year in business requirement.
Get our business credit building checklist and build business credit the fast and easy way to beat the recession blues.
Business Loans with Bad Credit: Alternative Loans
These are loans from private lenders rather than traditional banks. Most of them operate online exclusively. We’ve listed a few for you below. Be sure to double check details like required credit score and interest rate, as these things can change without notice.
Fundbox
Fundbox is going to be one of the first lenders to pop up if you search for alternative business loans. It is a line of credit rather than a loan, but it is a great funding option because there is no minimum credit score requirement.
They offer an automated process that is super-fast. Repayments are automatic, meaning they draft them electronically, and they occur on a weekly basis. One thing to remember is that you could have a repayment as high as 5 to 7% of the amount you have drawn currently, as the repayment period is comparatively short. This means you need to be sure you have enough funds in whatever account you connect them to so that it can cover your payment each week.
Loan amounts come as low as $100 and as high as up to $100,000, but the max initial draw is $50,000. Though there is no minimum credit score requirement, they do require at least 3 months in business, $50,000 or more in annual revenue, and a business checking account with a minimum balance of $500.
BlueVine
The minimum loan amount available from BlueVine is $5,000 and the maximum is $100,000. Annual revenue must be $120,000 or more and the borrower must be in business for at least 6 months. Your personal credit score has to be 600 or above. It is important to note also, that BlueVine does not offer a line of credit in all states.
Upstart
Upstart uses a completely innovative platform for alternative loans. The company questions the ability of financial information and FICO alone to truly determine the risk of lending to a specific borrower. Instead, they choose to use a combination of artificial intelligence and machine learning to collect alternative data. They then use that data to help them make credit decisions.
Alternative data can include mobile phone bills, rent, deposits, withdrawals, and even other information less directly tied to finances. The software they use learns and improves on its own. You can use their online quote tool to play with different amounts and terms to see the various interest rate possibilities. Typically, business loans are available ranging from $1,000 to $50,000. Interest rates vary greatly, ranging from 7.5% to 35.99%. You can pay back loans over either 3-years or 5-years.
To be eligible for a loan with Upstart, you must meet the following qualifications:
- Credit score of 620+
- No bankruptcies or negative public records
- No delinquent accounts
- Meet debt to income standards (they only note they will check this ratio, not what their standards are.)
- Have fewer than 6 inquiries in the past 6 months on your credit report, not including those related to student loans, vehicle loans, or mortgages
These are the requirements they list on their website. One independent review said that the requirement for the debt to income ratio is a maximum of 45%. It also says that the minimum annual income has to be at least $12,000.
Fora Financial
Fora Financial funds more than $1.3 million in working capital around the United States. There is an early repayment discount if you qualify.
This is a great option for business loans with bad credit. Why? Here is what Fora Financial says about credit score:
“At Fora Financial we do not believe that the number of your credit score defines who you are as a business owner. We look at your entire business model along with your future plans to create a financing program that will help you reach your goals.”
As you can see, there really isn’t a minimum credit score requirement.
Loan amounts range from $5,000 to $500,000. The business must be at least 6 months in operation and the monthly revenue has to be $12,000 or more. There can be no open bankruptcies.
OnDeck
Obtaining financing from OnDeck is quick and easy. First, you apply online and receive your decision once application processing is complete. If you receive approval, your loan funds will go directly to your bank account. The minimum loan amount is $5,000 and the maximum is $500,000.
They do require a personal credit score of 600 or more for at least one owner. Also, you must be in business for at least 3 years. Annual revenue must be at or exceed $100,000. In addition, there can be no bankruptcy on file in the past 2 years and no unresolved liens or judgements.
Kiva
Kiva is an online lender that is a little different. For example, the interest rate is 0%, so even though you have to pay it back it is absolutely free money. They don’t even check your credit. However, there is one catch. You have to get at least 5 family members or friends to throw some money in the pot as well. In addition, you have to pitch in a $25 loan to another business on the platform.
Accion
Accion is a microlender, a nonprofit, that offers installment loans to both startups and already existing businesses. You don’t have to already be in business, but if you are not, you must have less than $500 in past due debt. In addition, your business needs to be home or incubator based.
Loans are from 6 to 60 months and interest rates range from 7% to 34%. A personal guarantee, and sometimes specific collateral, is necessary in most circumstances.
What’s the minimum credit score? Accion says it best in their FAQ’s:
“Credit is just one of many factors that we look at when we work with business owners. If your credit isn’t well established or damaged, we can work to find strengths in your business or finances to make the loan possible. We do have firm requirements on past due debt and bankruptcies and have credit score minimums in some areas, so please check our loan requirements to see if we are a good fit for you.”
Basically, depending on your other information, Accion can be a good option for business loans with bad credit.
Get our business credit building checklist and build business credit the fast and easy way to beat the recession blues.
Build and Improve Business Credit and Forget About Business Loans with Bad Credit
Maybe one of these options will work for you. But what if you didn’t have to worry about finding business loans for bad credit? What if you could have good business credit? Guess what? You absolutely can! How? Well, first, you have to set up your business to be an entity separate from yourself. That way, when you take out debt in your business name and repay it, the accounts will report to your business credit report and not your personal credit report.
There is a lot to building fundability and business credit, but here is a starting point.
- Make sure you and your business do not share contact information. Your business needs a separate phone number and address.
- Get your business an EIN so you can apply for business credit without your SSN.
- Incorporate your business as an LLC, S-corp, or corporation.
- Make sure your business has all the licenses it needs to operate legally.
- Open a separate, dedicated business bank account.
After your business is set up properly, you can work with starter vendors to build business credit. These are companies that sell things you use in the course of everyday business, like office supplies, cleaning supplies, even packaging materials. They will issue net invoices without doing a credit check, so you don’t have to have credit to get credit with them. Then, they will report your payments to the business credit reporting agencies. That gets the ball rolling.
It is Possible to Get Business Loans with Bad Credit
It is absolutely possible to get business loans with bad credit. However, once you get the funding you need, don’t stay in a bad credit hole. Get to work building a ladder to get yourself out. Get the funds you need to stay open, but at the same time, work to put yourself in a better position for the future.
Get our business credit building checklist and build business credit the fast and easy way to beat the recession blues.
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