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Business loans are notoriously hard to get approved. The strict requirements and qualifications can be challenging for small or new businesses to meet. The good news is that the odds of borrowers being approved for a business loan have been increasing lately. The bad news is that these increases have been marginal: approval rates are still only 14.3% for big banks and 20.1% for small banks.

There are several reasons why a financial institution might reject your loan application. Your business might not have been operating long enough, you might not have enough yearly cash flow, or you couldn’t establish a solid enough business plan. While each of these reasons is a common cause for rejection, none of them are as important as your credit score.

Poor credit history is why roughly 20% of small-business loans are denied. Credit is often the first thing a lender will review on a request for any loan option or loan amount. With a personal loan, there is some wiggle room, and it’s possible to overcome a low credit score. The loan application is almost always denied with a business loan if the score doesn’t meet the minimum requirements.

Before we get to our list of the best business loans for bad credit, let’s explore your options for improving your credit.

What are some ways to improve my credit score?

It really can’t be overstated how important it is to have good credit in the business world. Most other criteria and measurements of success can vary. Making $100,000 in annual revenue is phenomenal for a lemonade stand startup but highly disappointing for a car manufacturer. 

On the other hand, FICO scores are universal and will provide a lender with the most critical data they need to determine whether or not to give you any type of loan.

There are two different types of credit available: personal and business lines. Individual credit scores range from 300 to 850, and business credit scores range from 0 to 100. It’s easiest to think of them as a number-based system that ranks how likely you are to repay a loan. 

The higher each number is, the more likely your loan will be approved. Fortunately, both of them follow the same basic guidelines and principles.

Here are a few things that you can do that can help to improve your credit score:

  • Make payments on time. Payment history has the single most significant impact on your credit scores. You must ensure every loan or credit payment is on time. Missing just one payment can hurt your score for years. Traditional lenders need to know that they can trust you to repay your loan on time. Even one instance of late payment can be enough for them to secondhand your dependability. 
  • Reduce the amount of credit you use. The credit utilization ratio refers to the amount of credit you use compared to the amount you have. If you have a credit limit of $10,000 and only a total balance of $450, you have a credit utilization ratio of 4.5%. If the balance is $4,500, the ratio would be 45%. Try to keep your ratio under 30% as often as possible. Paying off your balances and increasing your credit limit are two ways to achieve this goal. 
  • Use credit accounts instead of cash. After reading the last point, this might seem counterintuitive, but it’s an essential part of the process. You need to keep your credit accounts active to improve your credit score. If you use cash to pay for something, the credit bureaus will have no knowledge that it ever happened. You should use your credit accounts to cover expenses you can easily afford. Using credit and quickly paying off the balance is much better for your score than never using your credit at all. 
  • Dispute errors on your report. Credit bureaus aren’t perfect and make mistakes reasonably often. You may have done everything right and still have a low score. In that case, it’s most likely due to an error in your credit report. You should get in the habit of combing over your credit report once or twice a year to scan for errors. It can take a while to dispute a mistake, so you want to catch them as early as possible.

Which loans are best for a business with bad credit?

A bad credit score will severely limit your options for a business loan. However, a few places have a proven track record of extending business loans despite bad credit. While you work to improve your credit, these are the four loans that you should consider applying for:



Learn MoreOn OnDeck’s Website

The best place to start your search is going to OnDeck, an online lender. The requirements are a little more strict than other options on this list, but the terms are much more favorable. The best feature is that you can apply for money once you’ve paid back 50% of the original loan.

OnDeck grants business loans between $5,000 and $250,000 with three- to 36-month terms. You could also apply for a line of credit from $6,000 to $100,000, which features repayment terms of up to 12 months. Once approved for your loan, you can expect the money to be deposited into your account within the same day.

The minimum requirements for an OnDeck loan include:

  • A minimum credit score of 600
  • Be in business for at least a year
  • Have a business bank account
  • Make at least $100,000 in annual revenue
  • A personal guarantee and a business lien

The biggest downside to this loan is the interest rate. You can expect a minimum APR of 35% for loans and 35.9% for lines of credit. Another issue is that OnDeck typically requires a payment schedule that’s either daily or weekly. Business loans are unavailable for specific industries or businesses in South Dakota, North Dakota, or Nevada.



Learn MoreOn Credibly’s Website

Credibly, another alternative lender is the next best choice if you don’t meet the requirements for an OnDeck loan. Some eligibility requirements for Credibly are a little more lenient, but others are a lot more strict. Also, you’ll have a much wider variety of business financing options with Credibly than OnDeck.

Credibly grants business loans up to $400,000 with loan terms up to 24 months. You can expect to receive your funding the same day you’re approved. 

The minimum requirements for a Credibly loan include:

  • A minimum credit score of 500
  • Be in business for at least six months
  • Make at least $15,000 in revenue each month
  • Requires a personal guarantee

The main issue with Credibly is that the $15,000 in monthly revenue requirement can be a steep hurdle for new businesses to meet. On top of that, Credibly charges a 2.5% origination fee and requires a daily or weekly repayment schedule. The last issue is that Credibly uses a factor rate that can be pretty high. These rates range from 1.15 and go to 1.45 and work differently than interest. If you were to borrow $100,000 with a factor rate of 1.25, you’d have to pay Credibly a total of $125,000.


Rapid Finance

Learn MoreOn Rapid Finance’s Website

Rapid Finance is next on this list and can be a solid option if you don’t qualify for the other business funding options. The main draw of Rapid Finance is that it looks into the overall health of your business instead of just the credit score. There are still some credit requirements, but they’re among the lowest in the industry.

Rapid Finance grants business loans up to $1 million with loan terms up to 60 months. If you’re denied a loan, you only have to wait 30 days before you can reapply. If approved, you can expect the funds within a few hours. 

The minimum requirements for a Rapid Finance loan include:

  • A minimum credit score requirement of 500
  • Be in business for at least three to six months (some loans require two years)
  • Requires a business lien

The biggest problem with Rapid Finance is that they charge a monthly fee instead of the standard APR. These rates range from 9% to 31% and are separate from a 2.5% origination fee that you’ll also pay. 

Rapid Finance requires a daily or weekly repayment schedule like the other options on this list. Rapid Finance is not available for a business in Montana, Nevada, New Jersey, Rhode Island, South Dakota, or Vermont and has some loan restrictions in Oklahoma and Pennsylvania.



Learn MoreOn Fundbox’s Website

Fundbox is an AI-powered business lending platform that is relatively new compared to these other options. The AI quickly reviews all the relevant information about your loan application and decides within three minutes. It’s not the best option on this list and should be your last attempt after trying the other ones.

Fundbox grants business loans that range from $1,000 to $150,000, with loan teams between 24 and 52 weeks. You can also apply for a line of credit that caps at $150,000 and features repayment terms of 12 to 24 weeks. After being approved, you should have your funding by the end of the next day.

The minimum requirements for a Fundbox loan include:

  • A minimum credit score of 600
  • Be in business for at least six months
  • Requires a personal guarantee 

The first thing you probably notice about these loans is the incredibly short payment terms. At most, you’ll have a year to repay your loan, which can be a rigid time frame. The estimated APR has a vast range of 10.1% to 79.8% and is much higher than the other options on this list. The worst thing about Fundbox is that repaying your loan won’t help to build business credit. You should only consider this option as a last resort.


Build your credit score to receive a better loan

It takes about a million things to go right for you to meet the requirements of a business loan. It only takes one thing going wrong for you to be denied. You can meet every qualification on the board for a business loan. But you’ll still be rejected on the spot if you don’t have a high enough credit score. Credit is one of the few criteria that a loan lender won’t budge on.

The loans listed above can be an excellent way to secure your funding despite having bad credit. However, you should still get serious about improving your credit score. It’s almost guaranteed that you’ll need to borrow more money in the future. There are much better business loans as long as you have the credit requirements. Don’t settle for high-interest rates and fees when you can qualify for way more friendly terms. 

Information provided on Entrepreneur Guide is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, we do not recommend or advise individuals to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results

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