Best Small Business Loans for Bad Credit

Having bad credit doesn’t mean you can’t get funding for your small business — it just means you need to be strategic. Below I’ll walk you through the loan types and funding options most accessible for borrowers with low credit scores, what to expect (rates, terms, tradeoffs), and practical tips to improve your chances and cost. This guide focuses on realistic choices and when to use each one.

Quick reality check
“Bad credit” usually means a personal credit score under about 620 (scoring models vary). Lenders care because many small businesses are still backed by personal guarantees. With lower scores you’ll likely see higher interest rates, shorter terms, and more stringent collateral or guarantor requirements. That said, several product types explicitly cater to borrowers with imperfect credit.

1) Online short-term business loans / term loans

What they are: Unsecured or lightly secured small loans from online lenders, typically repaid over 6 months to 3 years.

Why they work for bad credit: Online lenders use alternative underwriting (bank deposits, cash flow, POS data) so personal credit is only part of the decision. They approve faster and with more flexible criteria than traditional banks.

Pros:

Fast approvals and funding (days).
Flexible underwriting beyond credit scores.
Good for bridging short-term cash needs, inventory, marketing.

Cons:

Interest rates and fees can be high compared to bank loans.
Shorter repayment windows — higher monthly payments.
Watch out for origination fees and prepayment penalties.

When to use: Seasonal cash flow gaps, short-term inventory purchases, or quick working capital needs.

2) Merchant Cash Advances (MCAs) and revenue-based financing

What they are: Lenders buy a portion of future card receipts (MCA) or set repayments as a percentage of daily sales.

Why they work for bad credit: Approval is often based on daily card volume or revenue history rather than credit score.

Pros:

Very fast funding.
Payments flex with revenue (for revenue-based financing).

Cons:

Extremely high effective interest rates (MCA can be expensive).
Daily/weekly holds on card receipts can strain cash flow.
Consider only as last resort or for immediate critical needs.

When to use: High, consistent card volume businesses that need urgent cash and can handle daily payments.

3) Invoice factoring / invoice financing

What it is: You sell outstanding invoices to a factoring company for immediate cash (minus a fee).

Why it works for bad credit: Approval depends on your customers’ creditworthiness, not yours.

Pros:

Immediate liquidity; good for B2B businesses with unpaid invoices.
Doesn’t require strong personal credit.

Cons:

Fees reduce effective revenue.
Factor may take control of collections and customer relationships.
Not suitable for businesses without receivables.

When to use: B2B businesses with long payment cycles and solid customer invoices.

4) Equipment financing

What it is: A loan or lease to buy equipment, often secured by the equipment itself.

Why it works for bad credit: The equipment serves as collateral; lenders are often more lenient since they can repossess the asset.

Pros:

Lower down payments possible.
You acquire necessary equipment while spreading cost.

Cons:

If you default, equipment can be repossessed.
Interest may be higher than bank loans.

When to use: When you need specific machinery or hardware to run or expand operations.

5) SBA microloans & community lenders (CDFIs)

What they are: Microloans (smaller amounts up to a certain cap) and Community Development Financial Institutions focus on underserved borrowers.

Why they work for bad credit: These lenders have mission-driven underwriting and more flexible criteria. While they may still consider credit, they weigh business plan, cash flow, and purpose.

Pros:

Reasonable interest rates and fairer terms.
Technical assistance and mentoring often included.

Cons:

Slower application process.
Smaller loan amounts than conventional bank loans.

When to use: Startups, social enterprises, or community businesses needing smaller amounts and guidance.

6) Business credit cards & secured business cards

What they are: Revolving lines of credit; secured cards require a cash deposit as collateral.

Why they work for bad credit: Secured cards or cards from alternative issuers can be easier to qualify for; they help build business credit if managed well.

Pros:

Useful for everyday expenses and building credit.
Revolving access if payments are on time.

Cons:

High interest rates if you carry a balance.
Credit utilization affects your credit profile.

When to use: Regular operating expenses and to begin rebuilding credit history.

7) Peer-to-peer (P2P) lending and marketplace lenders

What they are: Platforms that match small business borrowers with individual or institutional investors.

Why they work for bad credit: Some platforms consider alternate data and may have flexible criteria, though many still require moderate credit.

Pros:

Competitive options if your business story is strong.
Transparent marketplace rates.

Cons:

Rates vary widely; some platforms still prefer higher credit scores.
Platform fees and marketplace competition.

When to use: If you have a credible business case and can present strong financials.

How lenders evaluate bad-credit applicants

Cash flow and bank statements: steady deposits matter.
Time in business and revenue history: longer and higher revenue helps.
Collateral and guarantors: reduce lender risk.
Industry and customers: stable industries and creditworthy customers help.
Business plan and use of funds: a clear plan increases approval chances.

Practical tips to improve approval odds & lower cost

Clean up your personal and business credit: dispute errors, pay down high utilization.
Prepare 6–12 months of bank statements and financial projections.
Offer collateral or a personal/third-party guarantor if possible.
Consider applying with a stronger co-applicant or partner.
Start with smaller, easier approvals (e.g., secured card, equipment loan, microloan) and build history.
Compare total cost (APR + fees) — some loans look cheap but have high fees.
Use CDFIs and credit unions for fairer terms if available in your area.
Avoid predatory lenders — extremely high rates, unclear fees, or pressure tactics are red flags.

Alternatives to borrowing

Bootstrapping (cut costs, extend payables).
Strategic partnerships or revenue-sharing deals.
Crowdfunding or presales.
Grants (industry-specific or local government programs).

Bottom line

There is no single “best” loan for bad credit — the right choice depends on your business model, cash flow, how quickly you need funds, and how much you’re willing to pay for speed. For short-term needs and fast access, online term loans or MCAs are common but costly. For reasonable cost and support, look to SBA microloans, CDFIs, and equipment financing. If you have receivables or consistent card sales, invoice factoring or merchant financing may be the fastest route. Above all, compare all costs, read fine print, and prioritize lenders who are transparent and regulated.

Best Small Business Loans for Bad Credit