Small-Business Loans for Business Owners With Bad Credit

If you have bad credit – a personal FICO score between 300 and 629 – it’s not wise to apply for a small-business loan from a bank. You’ll likely get rejected, and that will hurt your score even more. But you have small-business loan options from online lenders. They use algorithms to analyze borrowers’ creditworthiness based on a combination of data points, not just credit score.

“A lot of the small-business lenders are assessing the health of your business, not the health of your personal finances,” says Matt Burton, chief executive officer and co-founder of Orchard Platform, a software company for institutional investors and online lenders.

Here are four small-business loan options if you have bad credit 

​For businesses that need a loan fast:
OnDeck
If you need money for long-term investments such as equipment, renovations, real estate or expansion, OnDeck’s term loan is an option. To be eligible for an OnDeck loan, business owners must have a minimum credit score of 500, have at least $100,000 in yearly revenue and have been in business for at least one year. The company has its own scoring system that analyzes metrics including cash flow, public records and social media data, OnDeck Chief Marketing Officer Andrea Gellert tells NerdWallet.

With OnDeck, you can borrow up to $250,000 and be funded within 24 hours. But quick access to cash comes at a price. The average annual percentage rate (APR) for an OnDeck term loan is 49%, according to a company presentation to investors in May 2015.

For businesses that need working capital fast:

Kabbage
If you need money for short-term working capital, such as to make payroll or buy inventory, a Kabbage line of credit up to $100,000 is an option. Personal credit score is not a primary criteria in the Kabbage underwriting algorithm, Ann Noder, a Kabbage spokeswoman, tells NerdWallet. Instead, borrowers give Kabbage access to their checking accounts and other business accounts such as QuickBooks, Square or Etsy, and Kabbage uses data from those sources to make lending decisions.

Kabbage lines of credit can be funded in minutes and must be repaid in one to six months. Similar to OnDeck, the price for quick capital is high. A $2,000 loan repaid in six months has a $240 fee, which is equivalent to an APR of around 41%.

For businesses that have a lot of invoices:
Dealstruck
If you have cash tied up in unpaid invoices, consider Dealstruck’s asset-based line of credit, which allows you to borrow up to 85% of your accounts receivable. The company also offers revolving lines of credit for businesses that need to finance inventory, and term loans up to $250,000 for long-term financing. Dealstruck’s lines of credit have APRS between 11% plus prime and 22% plus prime, and the term loans have APRs of 11% to 28%, according to the company.

To make lending decisions, Dealstruck weighs revenue, cash flow and profitability more strongly than personal credit score, says Ethan Senturia, the company’s co-founder and chief executive officer. Dealstruck has a “soft” FICO score minimum of 600, but has accepted scores in the 500 range, Senturia says.

For businesses that want low rates:
SmartBiz
If you’re looking for a small-business loan with low interest, SmartBiz is a good option. The company uses proprietary technology to originate U.S. Small Business Administration-backed loans up to $350,000, and it provides loans faster than SBA loans originated through traditional banks. The SBA sets maximum interest rates for the loans it guarantees, so SmartBiz loans have APRs around 7%.

To be eligible for a SmartBiz loan, you must have been in business for at least two years, filed two years of tax returns and have a credit score of at least 600, says Judy Balint, chief marketing officer at SmartBiz. To apply, you’ll need to submit personal and business financials, tax returns and credit reports.

The takeaway
Having bad credit doesn’t mean you can’t get a small-business loan. You can turn to online small-business lenders if you’re willing to pay higher interest rates. Still, it’s important to learn about the factors that affect your credit score and work to boost it, says Kenneth Salas, co-founder of Camino Financial, a company that matches small-business borrowers with various online lending platforms.

“FICO score still has a ton of weight on these algorithms,” he says.

NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business, so that you know which loans you qualify for.

​What is an SBA loan?
SBA loans are government-guaranteed small business loans typically made available to eligible U.S. entrepreneurs through banks and other financial institutions. With longer terms and lower rates, SBA loans provide excellent value for small businesses hoping to grow.

Am I a good candidate for an SBA loan?
If your business is in solid financial health, has been operational for more than two years, and has a strong credit history, you’re likely a good candidate. The quickest way to find out is to apply.

What documents do I need to apply for an SBA loan?
You can start your application right now and see if you pre-qualify before gathering any documentation at all. After that, our smart technology requests only the documents you actually need to apply.

What are my options if I’m not approved for an SBA loan?
Our network of trusted banks and lenders includes many options for businesses that don’t yet qualify for SBA loans. Typically there is no need to fill out more than one application, we’ll present you with other financing offers.