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Bad credit is a red flag for lenders. It indicates you’ve either mismanaged your personal finances or fallen on hard times. Either way, lenders see you as higher risk — more likely to miss payments or default on a loan than a borrower with good credit.
Bad credit (defined by FICO as a score of 300 to 629) is one reason loan applications are rejected; the approval rate of business loans from big banks was just 23.3% as of June 2016, according to Biz2Credit. But alternative lenders provide options. They emphasize the strength and operating history of your business rather than your credit. Be sure to carefully compare all of your choices, weighing terms and annual percentage rate.
Here are some options:
Note: If you’re a startup less than a year old, it’ll be tough to find a loan, no matter your credit. Here are some financing ideas to help you launch your company.
If your personal credit score is under 500
With a score below 500, your best bet is likely a lender with no minimum credit score. Many lenders require a minimum score to qualify, but Fundbox and Kabbage don’t. Both are good, although pricey, choices for bad-credit borrowers who need short-term working capital up to $100,000. Fundbox, however, is only for businesses with unpaid customer invoices. There’s no minimum revenue with Fundbox and no credit check. For Kabbage’s line of credit, you need least $50,000 in annual revenue and one year in business.
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| • Fast cash • Businesses with unpaid invoices |
• Fast cash • Short-term working capital |
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| • No minimum credit score • Must have unpaid customer invoices • Must have minimum of six months activity in an online accounting or bookkeeping software application such as Quickbooks, Xero or Wave |
• No minimum credit score • 1+ year in business • $50,000+ annual revenue • Must have a business checking, payment platform or accounting software account |
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| $500 to $100,000 | $2,000 to $100,000 |
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| 13% to 68% | 32% to 108% |
If your personal credit score is 500 or higher
With a personal credit score of at least 500 or 530, you could qualify for OnDeck or BlueVine. OnDeck is for businesses that have at least $100,000 in annual revenue and is better if you need cash for an expansion (such as purchasing equipment or making renovations). The lender reports payment activity to the three credit bureaus, so paying off your loan on time will help build your credit score. If your score is at least 530 and your business has unpaid customer invoices, consider BlueVine invoice factoring.
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| • Fast cash • Inventory • Expansion |
• Fast cash • Working capital • Businesses with unpaid invoices |
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| • 500+ credit score • $100,000+ revenue • No personal bankruptcies in past 2 years |
• 530+ credit score • Must have unpaid customer invoices • $120,000+ annual revenue • 3+ months in business |
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| $5,000 to $500,000 | $20,000 to $500,000 |
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| 9% to 98% | 17% to 60% |
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If your personal credit score is 600 or higher
Because your score is at least 600, you can turn to Dealstruck or StreetShares for financing. For larger amounts of funding and lower borrowing costs, consider Dealstruck, as it has term loans and lines of credit up to $500,000 with APRs from 10% to 28%. However, you’ll also need strong minimum annual revenue of $150,000 to qualify. If you have $25,000 or more in revenue, StreetShares is an option. Its loans max out at $100,000 with 9% to 40% APR.
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| • Expansion, inventory purchases • Businesses with unpaid invoices |
• Young businesses • Veterans |
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| • 600+ credit score • $150,000+ annual revenue • 1+ year in business |
• 600+ credit score • $25,000+ annual revenue • 1+ year in business, unless you already have $100,000 revenue (drops to six months) |
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| • $50,000 to $500,000 for term loans • Up to $500,000 for lines of credit |
$2,000 to $100,000 |
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| • 10% to 28% for term loans • 22% + prime rate for lines of credit |
9% to 40% |
Bad credit business loans: Summary of options
| Funding options | Good option for: | Do you qualify? | Loan amount & APR |
|---|---|---|---|
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• Fast cash • Businesses with unpaid customer invoices |
• No minimum personal credit score • No minimum annual revenue • Minimum 6 months' activity in online accounting or bookkeeping software that can link to Fundbox |
• $500 to $100,000 • 13% to 68% |
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• Fast cash • Short-term working capital |
• No minimum personal credit score • 1+ year in business • $50,000+ annual revenue • Must have business checking account, bookkeeping software or payment platform |
• $2,000 to $100,000 • 32% to 108% |
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• Fast cash • Expansion |
• 500+ personal credit score • $100,000+ annual revenue • No personal bankruptcies in last 2 years |
• $5,000 to $500,000 • 9% to 98% |
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• Businesses with unpaid customers invoices | • 530+ personal credit score • $120,000+ annual revenue • 3+ months in business |
• $20,000 to $500,000 • 17% to 60% |
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• Expansion • Inventory financing • Asset-based financing |
• 600+ personal credit score • $150,000+ annual revenue • 1+ year in business |
• $50,000 to $500,000 for term loans • Up to $500,000 for lines of credit • 10% to 28% for term loans; 22% + prime rate for lines of credit |
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• Newer businesses • Veterans |
• 600+ personal credit score • $25,000+ annual revenue • 1+ year in business, unless you already have $100,000 revenue (drops to six months) |
• $2,000 to $100,000 • 9% to 40% |
Need more options?
If none of these works for you, or if you’d like to compare your loan options, NerdWallet has curated a list of small-business loans best for business owners. All of our recommendations are based on the lender’s market scope and track record and on business owners’ needs, as well as rates and other factors, so you can make the right financing decision.
Compare business loansThis article was updated July 22, 2016. It was originally published Nov. 13, 2015.
from NerdWallet
https://www.nerdwallet.com/blog/small-business/small-business-loans-bad-credit/
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