By Daniel Lewis,
/ Advertising Disclosure

A bad credit score stands out like a sore thumb, and it is often the critical thing that will get your loan application rejected. Well, it will also affect other areas of your business, which can have an additional adverse effect.

However, not all is lost. Even though traditional banks require a higher credit score, you can still apply and get a small business loan from online lenders. Here I’ll outline the four best online loan providers for getting a small business loan even with bad credit.

Editor’s Last Update: The current financial state caused by the global pandemic forced many businesses to take drastic measures and work towards different goals. The Federal government had aid programs in place like the PPP loan program, but this ended, and now very few aid options remain. However, online lenders have taken the slack and provide viable loan options.

When forced with a bad credit score, you may think that your options are slim, and you could rush and take the first loan you come upon. I urge you not to make this mistake and do all the necessary research to provide you with suitable options. Luckily for you, I’ve done all the necessary research and bring you the best picks for online lenders that provide small business loans for businesses with bad credit scores.

Best Picks for Small Business Loans for Bad Credit at a Glance

#1- Kabbage  – is an excellent option for a small business loan for businesses with poor credit scores. The services Kabbage provides are streamlined, with an easy application process and fast funding.

#2 – OnDeck – is an online lender that provides access to term loans. It has a proper application process, offering both term loans and a business line of credit.

#3- SmartBiz  – facilitates getting an SBA (7)(a) loan and other types of loans. This online lender has a streamlined, automated application process, reduced application times, and expert support.

#4 – LoanBuilder – is an online lender providing short-term loans for small businesses. The services of LoanBuilder are especially apt for businesses with bad credit scores.

I’ve created the following comparison table consolidating all the important and relevant facts about each of these online lenders:

LENDER CURRENT FUNDING OPTIONS MIN CREDIT SCORE LOAN MIN/MAX LOWEST LISTED RATE
Kabbage A business line of credit N/A $1,000 – $250,000 2.5%
OnDeck Long-term loan, business line of credit 600 $5,000 – $500,000 10.99%
SmartBiz Long-term loan 640 $30,000 – $5,000,000 4.75%
LoanBuilder Short-term loans only 550 $5,000 – $500,000 6.49%

The Best Small Business Loans for Bad Credit (Updated 2021)

Kabbage – Great Option For a Business Line of Credit

Kabbage

Kabbage is among the best online lenders that provide loans for small businesses. Their application process is so streamlined that it takes minutes for you to put in your loan application. The best part about this online lender is that they don’t require any credit history when making an application. Also, the service works so fast that you get a response quickly, usually within ten minutes of applying.

The only loan option from Kabbage is a business line of credit. There are no term loans available from this service. The business line of credit you can get ranges from $1,000 to $150,000. The other terms are unambiguous; there are no origination fees, prepayment fees, and maintenance fees. You only pay a late payment fee, and you pay a monthly interest rate of 2-10%, depending on your loan amount.

Kabbage has several qualifying requirements in place, like no minimum credit score (though a 540 would be preferable), a minimal annual revenue of $50,000, and a minimum time in a business of 12 months. The repayment terms range between 6, 12, and 18 months.

Why We Recommend

When considering all the available options, Kabbage provides excellent financing options for small businesses with bad credit scores. The no minimum credit score requirement is quite tempting, but here I need to note that they have hefty interest rates, and you have monthly repayments.

Best for

The Kabbage business line of credit is a suitable option for small businesses struggling with bad credit scores. This online lender is also suitable for new businesses that have no credit history.

Pros
  • No minimum credit score
  • Quick application process
  • Fast approval rate
  • Low qualifying conditions
  • No origination, prepayment, and maintenance fees
Cons
  • Higher rate for shorter loans
  • Only one type of loan

Best Features

  • No minimum credit score
  • A business line of credit loan
  • 12 months in business, minimum qualifying requirements
Kabbage
Loan Type Loan Min/Max Lowest Listed Rate Repayment Term
Business Line of Credit $1,000-$150,000 2% 6/12/18 months
Personal Loans N/A
SBA (7)(a) Loans N/A
Term loans N/A

Read the full Kabbage review

OnDeck – Pioneering Online Lender, Streamlined Application

ondeck

In the list of online lenders, I’ve selected OnDeck to be one option for financing small businesses with bad credit. Provided, the minimum credit score requirement to qualify is 600, but the other terms of the loans are excellent. The other qualifying terms are annual income of over $100,000, a business checking account, and one year in business.

Still, OnDeck offers two types of loans: a business line of credit and term loans. The business line of credit loan can be taken in sums from $6,000 to $100,000, and the repayment period is 12 months. The term loan by OnDeck ranges from $5,000 to $250,000, and the repayment term is up to 24 months.

With OnDeck, there is a personalized experience for each borrower, and the service employs professional loan advisors that help guide you every step of the way. Another thing where OnDeck excels is its fully automated application process.

Why We Recommend

OnDeck would be an excellent option for a small business loan for businesses with poor credit, as it offers both term loans and a business line of credit. I like OnDeck because of its automated process, relatively low qualifying requirements, and flexible terms.

Best for

OnDeck is mainly for established businesses that need a loan with clear terms. The service has a SmartBox model that helps borrowers understand all the fees and terms beforehand.

Pros
  • Both line of credit and term loans
  • Very transparent terms and conditions
  • Fast funding options
  • US-based loan advisors
  • Simple application process
Cons
  • Higher interest rates
  • Higher qualifying conditions

Best Features

  • Professional service with an expert loan advisor help
  • Fast and flexible funding options – term loans and business line of credit
  • Amounts from $5,000 to $250,000
OnDeck
Loan Type Loan Min/Max Lowest Listed Rate Repayment Term
Business Line of Credit $6,000-$250,000 10.99% 12 months
Personal Loans N/A
SBA (7)(a) Loans N/A
Term loans $5,000-$250,000 11.89% 24 months

Read the full OnDeck review

SmartBiz – Get an SBA (7)(a) Loan With Ease

SmartBiz

The next option in my list of the best small business loans for bad credit is SmartBiz. SmartBiz is not like the other online lenders on my list, but it is a service that dramatically facilitates the process of getting SBA loans. These loans are not the most suitable for businesses with bad credit scores, but they offer many other advantages.

SmartBiz has a streamlined application process, making the whole process run smoothly and increasing the chances of getting an SBA loan. The SBA loans provided by SmartBiz are SBA (7)(a), SBA Commercial Real Estate Loans, and standard term loans. The amounts range between $30,000 and $5,000,000, with a repayment period of 10 to 25 years.

The qualifying requirements are a little steeper than the other entries here, but the fact that about 90% of SmartBiz applicants get an SBA loan makes the whole process worthwhile. To qualify, you will need a credit score of 640, an annual income of $100,000, and at least three years in business. SBA loans don’t charge any origination and prepayment fees but have a late payment, maintenance, one-time application, and bank closing fees. The interest rate is appealing with SBA loans, as it ranges between 4.75 and 7%.

Why We Recommend

SmartBiz is not precisely for businesses with bad credit, but getting an SBA loan is an excellent thing if you manage to raise your credit score. The interest rates and monthly payments appeal to many businesses, and it is why SBA loans are so sought after.

Best for

The loans facilitated by SmartBiz are best suited for businesses needing a steady, long-term loan with low-interest rates and long repayment periods.

Pros
  • Great opportunity for getting an SBA loan
  • Excellent interest rates
  • Professional customer service
  • Fast approval process
  • SmartBiz Advisor
Cons
  • Not suited for businesses with very poor credit
  • SmartBiz takes a 4% cut

Best Features

  • Excellent service for SBA loans
  • Fast approval process with close to 90% of applicants getting positive response
  • Long repayment periods
SmartBiz
Loan Type Loan Min/Max Lowest Listed Rate Repayment Term
Business Line of Credit N/A
Personal Loans N/A
SBA (7)(a) Loans $30,000-$5,000,000 4.75% 10-25 years
Term loans $30,000-$500,000 6.99% 2-5 years

Read the full SmartBiz review

LoanBuilder – Easy-to-qualify Terms, Short-Term Loans With Low Rates

LoanBuilder

To round up the list, I’ve selected LoanBuilder, a loan service provided by PayPal. LoanBuilder is a direct lender, and it is ideal for small and medium businesses. This online lending service prides itself on clear and transparent terms, and with no hidden charges, it is one of the best in its field.

LoanBuilder’s qualifying requirements are relatively low, which is suited for small businesses with bad credit scores and poor credit history. The only small business loan by LoanBuilder is their short-term loan ranging from $5,000 to $500,000, with repayment terms of up to 12 months.

There are very loose qualifying terms, like $42,000 in annual revenue, a minimum credit score of 550, and at least nine months in business. There are other conveniences like no origination, no prepayment, no stacking, or other hidden fees. The fee is fixed and is paid over the life of the loan. The only extra fee is a $20 returned item fee.

Why We Recommend

LoanBuilder is an excellent choice for the financing of small businesses with bad credit. This lender has low qualifying requirements, clearly set terms from the start, and no hidden fees, and it is why I recommend it as one of the best options for getting a short-term loan for a business with bad credit.

Best for

The short-term loan provided by LoanBuilder is best suited for small businesses looking for quick and easy loans and businesses just starting. It is also suited for businesses with low annual income and poor credit history.

Pros
  • Low qualifying requirements
  • No hidden fees
  • A PayPal-backed lender with a good reputation
  • Relatively competitive fixed interest rate
  • Excellent customer support
Cons
  • Short repayment terms
  • Personal guarantee required

Best Features

  • Low qualifying terms suited for small businesses with poor credit score
  • Clear terms and transparent conditions
  • Only short-term loans with a fixed fee
LoanBuilder
Loan Type Loan Min/Max Lowest Listed Rate Repayment Term
Business Line of Credit N/A
Personal Loans N/A
SBA (7)(a) Loans N/A
Term loans $5,000 – $500,000 6% 12 months

Read our full LoanBuilder review

How We Rate Small Business Loans Lenders

To get the best Small business loan services for you, I’ve outlined the selection criteria I’ve used:

  • Qualifying requirements
  • Transparency of terms and conditions
  • Interest rates
  • Type of loans offered
  • The complexity of the application process
  • Customer service and expert loan advisors help

Things to Consider When Applying for a Small Business Loan With Bad Credit

The credit score is the primary deciding factor when applying for a loan. You will notice that almost all online lenders and all banks have a prerequisite credit score in place for a business to be eligible for a loan. If you have a poor credit score, the lenders will often charge you a higher interest rate.

It is because a poor credit score is directly linked to your inability to pay your payments. Of course, the opposite is true, as if you have a higher credit score, the lenders are more confident that you’ll pay your payments on time and are willing to cut down on their interest rates and fees.

The other factors that affect whether you’ll get your loan approved or not are the personal credit score and the age of the business. Lenders often take a very close look at the personal credit score of the business owners. When applying for a business loan, you need to expect the lenders to delve deep into your credit history.

Additionally, lenders are reluctant to grant loans to businesses just starting. It means that you need to be in business for a while, usually at least nine months to a year, before you can apply for a business loan of any type. Many lenders have even more stringent rules about the age of the business and requirements for a business to be active for two or three years before being eligible for a loan.

How to Get a Business Loan With Bad Credit – Expert Tips

Here is what you need to know when applying for a small business loan and what to do beforehand:

  1. Get your financial statements in order, preferably with the help of financial software
  2. Learn your credit score and make attempts to raise it before you apply for a loan
  3. Cash flow statements are often essential when applying for a loan, have them handy
  4. Carefully consider all the loan options before you apply
  5. Select the best loan for your business model and repayment ability
  6. Always read the fine print – read and understand the terms and conditions of each provider before you make a final application

What Small Business Financing Can You Get With Bad Credit?

If you have a colorful credit history, it is unlikely that traditional banks will grant you a business loan. So, your option will be to turn to one of the online lenders who have specialized offers for small business financing for businesses with bad credit. Many online lenders consider other criteria instead of the credit score, like annual revenue and time in business.

How to Improve Your Chances of Obtaining Business Loans for Bad Credit?

To improve your chances of obtaining a business loan when your credit score is bad is something that requires patience and careful planning. First, check all the lenders you consider, and select the ones that have low requirements.

Next, make sure you fulfill all their requirements and not forget to state why you are looking for a loan. Online lenders often don’t look at credit scores as much as they look at cash flow statements, time in business, annual income, and other similar things.

How to Improve Your Bad Credit Score?

The first thing you can do to increase your chances of getting a business loan is to improve your credit score. It is not that difficult to raise your credit score, but it does take a lot of time, patience, and consistency in action. Try always to pay your bills on time, and plan your budget accordingly.

Never be late on a bill or other payment, and if necessary, take on a personal loan to consolidate your outstanding debt and pay it as soon as possible. Make periodic payments, as any time you pay off debt, it gets noted, affecting your credit score.

You may not believe it, but if you have no loans and have a low credit score, you are better off getting a loan or using your credit card to improve your credit score. Beware of this, as it can backfire if you seem too eager. Instead, try to keep your debts low and pay your payments on time. This brings us to another factor – payment history, as it is an integral part of raising your credit score, which can help you get a business loan faster.

What Can You Do If You’re Denied a Small Business Loan?

In the unfortunate case of being denied a small business loan, here is what you can do:

  • Analyze the rejection letter and see what is missing – each lender is required to send you an explanation letter covering why they’ve rejected you. See what is missing and work on improving that aspect.
  • Improve your credit score – this should be an ongoing endeavor, as you will always have better chances of getting better terms on your loans if you have a higher credit score.

Alternative Lenders

Apart from these four listed lenders, other alternative lenders offer good financing options for small businesses with bad credit. Please take a look at my reviews of these services and make an informed decision on all the options for online lenders that provide small business loans for businesses with bad credit:

  • Fundbox – this is a good option for a small business loan provider, as it does not require any annual income condition, no minimum credit score, and offers a credit limit of up to $100,000. The downside of this lender is the short repayment period, which is between 12 and 24 weeks.
  • Lending Clubthis Facebook-backed online lending service is a good option for small businesses with bad credit. It has an option to consolidate all outstanding debt and even refinance an existing loan. However, the funds are awarded by Lending Club partner Accion Opportunity Fund.

Conclusion: You Can Get a Small Business Loan, Even With Bad Credit

It is not impossible to get a small business loan, even if you have bad credit. You only need to know where and how to apply, as there are plenty of online lenders that offer incredible small business loan opportunities. For example, Kabbage does not have any minimum credit requirements, and LoanBuilder has a minimum requirement of 550. As you can see, it is not impossible to get a loan; you only know where to look. I’ve compiled the best online lenders for bad credit according to the category they excel in:

  • Best Overall – Kabbage
  • Runner-Up for Best Overall – OnDeck
  • Best for Pricing – Kabbage
  • Best Application for Small Business Loan – LoanBuilder
  • Best for Interest Rates – SmartBiz
  • Best for Business With Bad Credit – Kabbage

FAQ

Does a Business Loan Affect Personal Credit?

Yes, getting a business loan for your business will most often reflect on your personal credit score. It is because small business loans are often guaranteed by individuals, and are linked to your credit history. The same goes for a business line of credit, as these too require a guarantee from an individual.

Can You Start an LLC With Bad Credit?

Surprisingly, yes, you can start an LLC if you have bad credit. This may actually help your case. By starting an LLC, you get a tax identification number that identifies your business as a tax-paying entity, separating your personal and professional sides. Next, you can open a business account with this tax info and build credit for your business that is separate from your personal credit.

How Much Do Bad Credit Business Loans Cost?

It is a fact that when you apply for a business loan with bad credit, you will usually get higher interest rates. It is directly linked to your paying power – the credit score depends on your paying power and paying habits. Thus, the poorer your credit score, lenders will put you in a higher risk category and will raise your interest rates. The opposite is also true, as people with better credit scores will usually get better interest rates. There is no set rule, but based on my research and calculations, a bad credit loan can mean up to 1.9% higher APRs, depending on your loan amount, can amas to quite a hefty sum over the life of the loan.

Are Credit Cards a Good Way to Raise Credit Score?

Yes, even though it goes against logic at first. By having a credit card and making regular monthly payments, you are improving your credit score. Of course, you should never be late on paying your bills as on-time payments increase reliability, which in turn positively affects your credit score.

How Does the Event Affect the Time Taken to Raise a Credit Score?

Here is a table outlining the most common events and the time it takes to raise credit score:

Event Credit Score Recovery Time
Bankruptcy 6+ years
Home foreclosure 3 years
Missed/default payment 18 months
Late mortgage payment 9 months
Closing credit card account 3 months
Maxed credit card account 3 months
Applying for a new credit card 3 months
Daniel Lewis
Daniel Lewis
Daniel Lewis is an MBA accredited investment professional who wants to assist small business owners to gain access to finance. After going through many channels for funding, Lewis has found that getting the first loan right is vitally important for future success.