Business loans for startups with bad credit: What to know

You can kickstart your business dreams without perfect credit. Explore business loans for startups with bad credit and alternative funding options to consider.

Anna Baluch
April 10, 2024

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No matter your industry, business loans can help you launch your venture, acquire customers, market your offerings, and more. However, getting approved for them can be a real challenge if you have bad credit. 

The good news is that it is still possible to lock in the financing you need to meet your goals. Here’s everything you need to know about business loans for startups with bad credit.

How does a startup business loan work? 

A startup business loan is designed to help you cover various expenses related to starting your business. The loans are usually flexible and can be used to run or grow your venture. Some common uses for startup business loans include commercial real estate, inventory and supplies, marketing, payroll, insurance, and taxes. 

Depending on the loan type, you can receive a lump sum of money upfront and repay it over time through fixed monthly payments. 

Alternatively, you can secure a revolving line of credit from which you can withdraw funds whenever you like, up to a set credit limit. When the draw period ends, your balance will be converted into a principle-plus-interest loan you repay monthly. 

Types of business loans for startups with bad credit 

There are a number of business loans for startups with bad credit, including:

Term loans

One common loan type is a term loan, which banks, credit unions, and online lenders offer. Term loans work similarly to traditional loans in that you get access to a lump sum of cash and repay the principal plus interest via monthly payments. The repayment period typically lasts a few years to several. 

Depending on the lender, receiving the loan can take weeks or even months. Eligibility and rates are based on your creditworthiness and other business financial factors. Interest rates can range from 5% to 30% APR.  

Secured loans

Secured loans are backed by personal or business collateral, such as a piece of property, vehicle, or savings account. Most secured loans offer a lump sum. You then repay via set fixed monthly payments over a term lasting a  few months or a few years. 

Interest rates for secured loans can vary widely depending on the lender, your creditworthiness, and the value of the collateral. Rates generally range from around 4% to 36% APR.

The main advantage is that secured loans are easier to qualify for than traditional term loans because of the collateral. However, should you default on a secured loan, the lender has the right to seize your collateral. 

Business line of credit

A business line of credit works similarly to a credit card. Once approved, you'll have access to the funds at any time, up to a set credit limit. You'll be on the hook for minimum monthly payments — but it's always best to pay off your balance in full. 

Eligibility, interest rate, and credit limit are based on factors such as credit score, business financials, time in business, and revenue. Interest rates are variable, so they fluctuate with market conditions and typically range from around 7% to 25%. 

If you're looking for a flexible form of financing and want to access cash as you need, you may wish to explore a business line of credit. 

Working capital loans

Working capital loans are short-term business loans that help cover regular operating expenses. For example, you might use a working capital loan to pay rent, utilities, inventory, or payroll. This type of loan is known for fast funding; you can receive money within a few days instead of weeks or months. Repayment occurs weekly or monthly over a short period.

Working capital loans are often easier to qualify for than other types of loans. Eligibility is based on factors such as credit score, business financials, and time in business. Interest rates vary from around 6% to 25%.


Equipment financing

Equipment financing provides capital for new or used supplies for your business. For example,  if you have a construction company, an equipment loan can cover the cost of bulldozers, excavators, backhoes, loaders, and pavers. 

The equipment serves as collateral, so qualifying is fairly easy. However, a lender can look at factors such as credit history, business financials, and the value of the equipment to determine eligibility. Depending on the lender, you may be able to cover 100% of the equipment. 

Repayment periods for equipment financing typically match the equipment's expected lifespan, ranging from a few years to several years. Monthly payments are standard. Rates can range from around 5% to 30%. 

How to get a business loan with bad credit

If you’re interested in a business loan with bad credit for your startup, follow these steps:

1. Check your credit 

When reviewing your application, lenders may look at your personal and/or business credit reports. Review your credit report to determine what you can qualify for and to check for discrepancies. 

If you find any inaccurate remarks on your reports, such as unpaid tax liens or recent bankruptcies, be sure to dispute them and improve your score. 

2. Shop around

Next, jot down a list of all the expenses you'd like to cover with a business loan and how quickly you need funds. This can help you narrow down the types of loans you should explore. 

Then, explore the various options, comparing rates, funding timelines, and terms. If you have bad credit, many traditional loans will likely offer higher-than-average rates — which is why you may wish to explore alternatives to business loans. We’ll cover these below. 

3. Consider a co-signer

A co-signer may increase your chances of getting approved for a business loan. If you have a trustworthy friend, family member, or business partner with solid credit and a stable income, it's worth considering. However, if you default on the loan, the co-signer will be responsible for repayment – which could severely damage a personal or professional relationship. Note that not all lenders allow co-signers. 

4. Organize your documents 

Once you decide on the right loan and lender for your unique startup, it's time to gather the documents you'll likely need to apply. While each lender will have their own requirements, many will require the following:

  • Business plan: A business plan is a formal document that outlines a business's goals and plans to achieve them. 
  • Business documents: Depending on your state and industry, these include licenses and registrations. 
  • Financial documents: You'll likely have to share recent copies of your business and personal tax returns and bank statements. You may also need to submit various business financial statements, such as balance sheets, profit and loss statements, and cash flow projections. 

5. Apply

Depending on the lender, you can complete this process online, over the phone, or in person. You’ll be asked to provide various details about yourself and the startup. In addition, you’ll need to attach the documents the lender requests. Double-check your work to avoid delays in the approval and funding process. 

You may have to sign a personal guarantee during the application and approval process. A personal guarantee states that you agree to repay the loan if your business defaults on it personally. It gives lenders additional peace of mind and makes lending to bad credit borrowers less risky.

Can you get startup business loans with no revenue, bad credit, and no business assets?

Yes, it’s still possible to get a loan or financing. However, you’ll likely need to explore alternative funding options. Traditional lenders prefer borrowers with established financial histories and may be hesitant to approve you. 

Alternative ways to get cash for your business 

Government assistance programs 

The Small Business Administration (SBA) offers microloans of up to $50,000. These loans help you build credit while providing the necessary resources to launch or grow your venture. While these loans are backed by the SBA, they're offered by non-profit lenders and don't require a minimum personal or business credit score. 

The Community Advantage (CA) program is another solution for startups, specifically veteran-owned companies and businesses in low-income communities. Eligibility requirements are relaxed, and you can get approved for up to $350,000 in funding even if you have bad credit. 

It's always a good idea to explore local programs in your area, too. 

Invoice factoring

Through invoice factoring, you can sell outstanding or unpaid invoices to a factoring company at a discount in exchange for cash. The factoring company typically gives you up to 80% to 90% of your unpaid invoices. The company assumes responsibility and collects payments from customers. Then, it returns the remaining 10% to 20% minus factoring fees, which may be from  1% to 5% of the invoice value.

Eligibility is based more on the creditworthiness of your customers than your own credit score and the quality of your invoices.

Merchant cash advances

Merchant cash advances (MCAs) are not technically loans; instead, a company is purchasing a portion of your future sales. MCAs offer a lump sum of cash in exchange for your credit and debit card sales. Similar to invoice factoring, these loans are easy to qualify for and offer flexible repayment terms. Most lenders will require you to pay back your advance through a percentage of your daily sales via regular withdrawals from your business bank account. 

Home equity funding

If you own a home, you can tap into your home equity to fund your startup. Home equity financing uses your home as collateral, making eligibility a bit easier and rates more favorable. However, should you default, you risk foreclosure.

There are a few products that can allow you to do this, including:

  • Home equity loan: With a home equity loan for your business, you'll receive a lump sum of cash upfront. Repayment begins almost immediately and consists of fixed monthly payments over a 5 to 20-year term. Most lenders will require at least 20% of equity in your home and a minimum credit score of 620.
  • Home equity line of credit (HELOC): A home equity line of credit (HELOC) is a revolving line of credit from which you can withdraw funds up to a set credit limit. After the draw period ends, which is typically 5 to 10 years, the repayment period begins. The repayment period ranges from 10 to 20 years; you'll be on the hook for monthly payments with a variable rate. Like a home equity loan, you'll need a minimum of 20% in your home and a credit score of 620 or higher. 
  • Home equity investment (HEI): A Home Equity Investment (HEI) gives you a lump sum of cash in exchange for a share of your home's future appreciation. There are no monthly payments; instead, you repay your investment anytime during a flexible 30-year term. You'll need a credit score above 500 to qualify. 

Peer-to-peer lending

Peer-to-peer loans offer the opportunity to borrow money from individual investors instead of traditional lenders such as banks and credit unions. Platforms like Prosper and Upstart can match you to prospective investors who will determine your interest rate and terms. 

Typically, you’ll repay the loan plus interest through fixed monthly payments. Peer-to-peer lending sites often have relaxed credit requirements and fast funding, but you might be on the hook for additional fees and a higher-than-average interest rate.


Crowdfunding is raising money for your startup through donations. It can also promote your business and help you connect with potential customers. 

If you go this route, you should use a reputable crowdfunding platform, like Kickstarter or Indiegogo, and promote it on various outlets, such as social media and email. While you don’t have to undergo a credit check and repay the money you raise, most platforms charge fees, and there’s no guarantee you’ll meet your funding goals. 

Venture capitalists and angel investors

Venture capitalists invest in startups they believe have high growth potential. In exchange for their funding, they usually ask for equity in your company. They typically step in and provide capital at a later stage. 

On the other hand, angel investors take a more hands-on approach. In addition to funding, they may offer mentorship and connections to help you succeed. 

Both generally require sharing in your profit gains. Connecting with angel investors and venture capitalists can be challenging. You’ll likely have to explore platforms with other competing startups or attend networking events in person. 

Final thoughts

If you're a startup with less-than-perfect credit, you still have options. It's best to explore all possible solutions and take stock of your assets to find funding that meets your needs. 

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