Getting a business loan with bad credit can seem like a tough challenge. Traditional banks often rely on credit scores as a key factor in loan approval, making it difficult for low-credit business owners to get the funding they need. Whether it’s a low personal FICO score or a weak business credit profile, bad credit can lead to high interest rates, strict repayment terms, or outright loan denials.
But having bad credit doesn’t mean funding is out of reach. There are many other financing options that aren’t just based on credit scores. From revenue-based loans to invoice financing, business owners have several ways to secure the capital needed to grow their operations.
Understanding how lenders assess credit risk, exploring financing alternatives, and taking strategic steps to improve financial standing can help business owners find the right business funding solutions. Let’s dive into what’s possible.
How Lenders Define “Bad Credit”
Credit scores play a major role in business loan approvals. But what exactly is considered bad credit?
Lenders use different credit scoring models, but in general:
- A FICO score under 580 falls into the poor credit range.
- A FICO score ranging from 580 to 669 is classified as fair, which can still make borrowing difficult.
- Some lenders also review business credit scores, such as the Dun & Bradstreet PAYDEX score or Experian’s Intelliscore.
Banks and credit unions usually have strict criteria, which can make it tough for business owners with bad credit to get approved. They see low credit scores as a sign of financial instability, increasing the risk that the borrower might default on their loan.
But not all lenders take the same approach. Several alternative lenders prioritize factors like business revenue, cash flow, or collateral instead of credit scores. This creates more opportunities for business owners who might not meet traditional lending requirements.
The Impact of Bad Credit on Business Financing
Bad credit can affect financing options in several ways:
- Higher Interest Rates – To balance the risk of lending to business owners with low credit, lenders typically charge higher interest rates.
- Lower Loan Amounts – A business may qualify for less funding than it needs.
- Shorter Repayment Terms – Lenders may require faster payback to reduce risk.
- Denial from Traditional Banks – Many banks won’t approve business loans with bad credit, pushing business owners to look for alternative financing options.
While these challenges exist, business owners still have plenty of options to explore.
Alternative Financing Options for Businesses with Bad Credit
Many lenders offer financing solutions that don’t rely heavily on credit scores. Here are some of the best alternative financing options for businesses with bad credit:
1. Business Credit Cards
- Some secured and unsecured business credit cards cater to those with lower credit scores.
- These cards can help build credit while offering short-term financing for business expenses.
2. Merchant Cash Advances (MCAs)
- Business owners get a lump sum upfront in return for a share of their future sales.
- Great for businesses with strong daily revenue but poor credit.
- High fees, so it’s best for short-term funding needs.
3. Invoice Financing
- Businesses can borrow against unpaid invoices to get immediate cash flow.
- Lenders base approval on invoice value, not credit score.
- Ideal for companies with long payment cycles.
4. Equipment Financing
- These loans are designed for buying equipment, using the equipment itself as collateral.
- Credit score requirements are often more flexible.
5. Revenue-Based Loans
- Lenders focus on cash flow instead of credit scores.
- Repayments adjust based on a percentage of revenue, making them easier to manage.
6. Microloans
- Smaller loan amounts, typically under $50,000, offered by nonprofit lenders.
- Often more accessible to low-credit business owners.
These financing options provide alternatives to traditional loans and help businesses get the capital they need, even with poor credit.
How to Improve Your Chances of Loan Approval
While bad credit makes borrowing harder, there are ways to increase approval odds:
1. Strengthen Business Credit
- Set up accounts under the business name and pay on time.
- Partner with vendors that report to business credit bureaus.
2. Offer Collateral
- Loans can be backed by assets such as real estate, equipment, or inventory.
- Reduces lender risk, increasing approval chances.
3. Get a Co-Signer
- Partner with someone who has better credit to strengthen the application.
4. Show Strong Financials
- Lenders may overlook bad credit if the business has steady revenue and positive cash flow.
5. Apply with Alternative Lenders
- Online lenders and fintech companies have more flexible approval criteria.
Following these steps can make it easier for business owners with low credit to secure funding.
Steps to Rebuild Credit for Future Loan Success
Improving credit takes time, but it’s possible with the right approach:
1. Pay Down Debt
- Lower credit utilization by reducing outstanding balances.
2. Make Timely Payments
- Paying on time plays a huge role in improving credit scores.
3. Monitor Credit Reports
- Check for errors and dispute inaccuracies to improve scores.
4. Diversify Credit Mix
- A combination of installment loans and credit lines can boost creditworthiness.
These steps set businesses up for better financing opportunities in the future.
How First Horizon Solutions Helps You Find the Right Lender
Finding the best lender for a business loan with bad credit can be overwhelming. That’s where First Horizon Solutions comes in.
We help business owners find lenders who recognize the challenges of bad credit. Whether you’re looking for a merchant cash advance, invoice financing, equipment loans, or revenue-based funding, our team finds financing solutions tailored to your needs.
By working with a network of trusted lenders, we make it easier for business owners to secure funding without facing constant rejections. Instead of searching through countless lenders on your own, First Horizon Solutions streamlines the process, matching you with financing options that work—no matter your credit score.
Our team provides expert guidance on:
- Which lenders offer funding for low-credit business owners
- How to improve approval chances
- What financing option is best for your business model
Business funding shouldn’t be limited by credit score alone. First Horizon Solutions helps you navigate alternative lending options, so you can secure the capital you need to grow.
Final Thoughts
Bad credit doesn’t have to stop business growth. While traditional banks may turn away low-credit business owners, alternative financing options provide a way forward. From invoice financing to revenue-based loans, there are plenty of ways to access capital without a perfect credit score.
At First Horizon Solutions, we help businesses secure funding through trusted lenders, offering expert guidance every step of the way. If you’re ready to explore your options, reach out to First Horizon Solutions today—because your business deserves the right funding, regardless of credit history. Apply Now — 92% approval rate!
