Financing Options for Businesses with Bad Credit | Fora Financial Blog
5 Financing Options for Business Owners with Bad Credit
December 06, 2017
5 financing options for business owners with bad credit

5 Financing Options for Business Owners with Bad Credit

It’s an old cliché: “you have to spend money to make money.” But what if you don’t have any money to spend? Even for small business owners with favorable credit scores, obtaining sufficient business financing can be challenging. Then there are business owners with bad credit, who find trying to receive financing to be nearly impossible.

If you have a poor credit score but need additional working capital, don’t panic just yet. There are viable options if you’re willing to do the legwork. In this post, we’ll cover five financing options for business owners with bad credit. For reference, FICO defines “bad credit” as any score of 300 to 629.

1. Revenue-Based Loans

According to the Small Business Administration, small business owners with less than perfect credit and no collateral can qualify for a revenue-based loan. With a revenue-based loan, instead of evaluating credit, the bank looks at your cash flow and bases the loan amount and repayment schedule based on your monthly cash deposits.

The repayment will be dictated by a fixed monthly percentage and generally the rates are higher than traditional business loans. Of course, this means that you will have to have consistent cash flow. The loan amounts range between $50,000 to $1,000,000. For early-stage businesses, a revenue-based loan is ideal when the business needs a cash infusion but the owner doesn’t want to give up control.

Revenue-based loans are not right for everyone, but they’re worth considering for business owners with poor credit.

2. Merchant Cash Advance

 Small business owners with poor credit may also find a viable financing option in the form of merchant cash advances.

With a merchant cash advance, you pay a portion of your credit and debit card sales in exchange for a cash advance. How you remit may vary depending on how the cash advance is structured. According to Nerdwallet, the typical cash advance has a “factor rate” that ranges from 1.2 to 1.5. The cost of your advance is calculated by taking the advance amount and multiplying it by the factoring rate. Keep in mind that other fees may be involved and terms may vary depending on the lender that you’re working with.

3. Gifts and Grants

If you have a low credit score and need financing, you shouldn’t underestimate the potential value of gifts and grants. Small business grants are competitive, but so is every other venture worth undertaking. If you run a business in a low-income area, you’ll have an even better chance of qualifying for a grant.

You can learn more about grants at In addition, you should take advantage of the power of your existing network. It might feel awkward at first to bring it up with family or friends, but if you have a solid plan and believe in what you’re doing, it won’t hurt to ask. Even a loan from a friend with a favorable interest rate could give you the boost you need.

4. Credit Partners

 Another idea to obtain business financing if you have poor credit is to seek out a credit partner. By teaming up with a credit partner, you’re partnering with someone who has good credit so that you can qualify for a line of credit. This strategy works even better if your credit partner also happens to want to (and be qualified to) own a portion of your business.

5. Microloans

There are a variety of lenders who provide microloans to small business owners, and many are generally open to lending to owners with bad credit. The biggest drawback with these loans is the “micro” part. According to the SBA, their average microloan is $13,000.

While they’re not the only microlenders, the Small Business Administration has a microloan program which offers loans up to $50,000. If you’re interested in a microloan from the Small Business Administration, you won’t actually get a loan from the SBA. Instead, you’ll work with a local intermediary that receives funds from the SBA. An added benefit of microloans is that you’ll build a credit history and start getting your credit score moving in the right direction.

Find Business Financing with a Low Credit Score

Hopefully after reading this post, you feel confident that one of these options will allow you to receive financing despite your low credit score. Once you receive financing, use it wisely, and make improving your credit score a priority. That way, if you need financing in the future, it will be easier!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].
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