Small Business Loans with Bad Credit
Bad credit is a fact of life. Everyone has had a run-in with it at one time or another; whether it was a small thing like paying your phone bill late, or something much larger, such as being unable to make mortgage payments after losing your job.
Sometimes the impact of bad credit can be overwhelming. And, even make it impossible for you to get a small business loan – but there is hope.
Usually, when you apply for a small business loan with bad credit, your rights are protected. However, if something goes wrong with the financing agreement and the lender doesn’t fulfill his obligation to lend money to you then what alternatives do you have? Let’s find out.
- Rep APR
- Loan Amount
- Credit Score
BlueVine
- 15.00 - 68.00%
- $5 million
- 530
Biz2Credit
- -
- $5 million
- Undisclosed
OnDeck
- 11.00 - 61.90%
- $2 million
- 600
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
Who is eligible for Small Business Loans?
Small business loans are targeted towards company owners who want to expand their business. Furthermore, to get approved for bad credit small business financing, you must be the majority owner of the company (at least 51 percent).
In addition, under the definition of a small business loan lender, you have to be classified as a small business. The criteria to define “small” varies from state to state as well as bank to bank.
Generally, businesses with less than $2 million are considered small companies (as an example).
To get approval for a small business loan, you have to be the majority owner or work in partnership with someone that is.
Furthermore, you must meet other requirements such as age and credit score. This criterion varies from state to state. So, the best idea is to start searching online for details about obtaining bad credit loans. We discuss more on that later in the post.
To get approved for bad credit small business financing, you must be the majority owner of the company (at least 51 percent).
Requirements to qualify
A bunch of requirements are needed to be approved for a small business loan with bad credit. Since this type of financing is offered by banks and other financial institutions, the process has been regulated over the years.
For example, you have to be at least 18 years old; your business can’t be less than 2 years old; your business has to have a clear profit motive (you can’t get a loan for something that doesn’t make any money); you must be the majority owner of the company; etc.
The following are the general requirements to qualify for a small business loan with bad credit:
- You must have an active checking account. This is the only way of ensuring that you will repay your dues. If you don’t meet this requirement, you won’t be approved for small business financing.
- A well-prepared loan application form. The lender will want to know your complete credit history, so make sure that you are honest in your application.
- Your business must have an income of at least $10,000 per month. This is required to be considered a good risk by banks and other lending institutions.
- You must prove that you can repay the loan and be an active part of your business. If you have a bankruptcy on the books, then it will be very difficult to get approved for small business financing.
- A co-signer may be required when applying for a bad credit small business loan. Your personal credit history is not ideal and it doesn’t look good if you are not approved for a small business loan, so the lender wants to make sure that you will not default on your dues. So having someone who believes in you and is willing to sign as a co-signer may help your chances.
Small business loans you can get with bad credit
There are quite a few banks and lending institutions which offer small business loans to people with bad credit. Here is an overview of the most popular options:
- Personal Loans from banks. The interest rates on these loans are relatively high compared to other financing alternatives. But, they do have flexible terms and approval conditions. You can also apply for them in person, online, or through phone conversation.
- Business Lines of Credit. These lines of credit are useful to corporations that want to borrow against their existing assets or accounts receivables. The interest rates on these lines of credit are also relatively high, but it doesn’t require collateral for approval.
- Credit Cards with low interest rates. If you have a credit card with a low-interest rate, then you can take out a cash advance using your existing credit line and use the money for business purposes. It is important to remember that this will result in high recurring fees, so make sure that you pay it off as soon as possible.
- Private Money Lending. It isn’t easy to get a loan from a private money lender. But, some companies specialize in this type of financing so it is definitely worth the effort. The rates on these loans are relatively low and you will have more flexibility in terms of repayment schedule.
- Business Credit Cards with no balance transfer fee. Business credit cards don’t have a great reputation, but it is easier to get approved if you can show that your business has been profitable over the past 2 or 3 years. These cards won’t help with short-term financing needs, but they are good options for financing long-term and recurring expenses.
- SBA Loans for Small Businesses. The SBA is a government organization that helps small businesses get approved for large loans. The interest rates on these loans are relatively low and you can apply in person or online.
- Merchant Cash Advances (MCA). If you have a business that sells products and services, then it is possible to use your future credit card sales as collateral to get a small amount of short-term financing. It is possible to get approved for these loans in person or online, but the interest rates can be as high as 400%.
So here you have all of the most popular options for small business owners with bad credit. If your personal finances are in good order and you can get a co-signer, then you should consider the first option.
If not, then your best bet is to go with a credit card advance or an MCA loan.
Small business loans for minorities with bad credit
There are not many banks and lending institutions that provide funding to minorities, but there is a small number of options. So if you are an African American, Hispanic, or Asian business owner with bad credit then take a look at these financing alternatives:
- Bank Financing. Just like the rest of the population, you can get approved for a small business loan from your local bank if you have a good personal credit score and collateral to pledge. It is worth mentioning that minority entrepreneurs are more likely to be denied than Caucasians with bad credit.
- Lines of Credit from Small Business Banks. These lines of credit can be used to cover any short-term financing needs that your business may have. The interest rates on these lines of credit are relatively low, so they are good options for those who don’t want to deal with the high upfront costs associated with a typical business loan.
SBA Small business loans with bad credit
There are not many banks and lending institutions that provide funding to minorities, but there is a small number of options. So if you are an African American, Hispanic, or Asian business owner with bad credit then take a look at these financing alternatives:
- Bank Financing. Just like the rest of the population, you can get approved for a small business loan from your local bank if you have a good personal credit score and collateral to pledge. It is worth mentioning that minority entrepreneurs are more likely to be denied than Caucasians with bad credit.
- Lines of Credit from Small Business Banks. These lines of credit can be used to cover any short-term financing needs that your business may have. The interest rates on these lines of credit are relatively low, so they are good options for those who don’t want to deal with the high upfront costs associated with a typical business loan.
SBA Small business loans with bad credit
The Small Business Administration (SBA) is a government agency that provides small businesses with financial assistance and advice.
The SBA came into existence in 1953 to recover the losses of small businesses affected by natural disasters around the country. Since its inception, the SBA has helped over 5 million American entrepreneurs start or expand their operations all across America.
If you have bad credit, then it is highly unlikely that you will be approved for a traditional business loan from the bank.
However, there is still hope if you are willing to do some l Small Business Administration Loans with Bad Credit. In particular, here are the most popular loan types offered by the SBA:
SBA Express Loan. The express loan program offers unsecured business lines of credit that can be used to cover short-term and seasonal expenses. You may also choose to use the funds as collateral for a line of credit or a cash advance through the SBA.
Microloans for Small Businesses with Bad Credit.
- SBA 504 Loans. This is the largest source of financing for small businesses with bad credit. The loans are unsecured and can be used to cover a wide range of expenses. They also have relatively low interest rates and terms for as long as 10 years.
- Microloans for Minority-Owned Businesses. This loan program is designed specifically for small businesses owned by minorities, women, and veterans with bad credit. The SBA offers a wide range of business loans and financing programs with low-interest rates.
For the SBA 504 Loans in Particular, here is an overview of the most important aspects associated with these small business loans.
SBA Loan Application Process;
The application process for an SBA loan can be a bit more complicated than applying for other lines of credit, due to its bureaucratic nature and the multiple steps involved in the approval process:
- Visit the SBA’s website for a list of approved loan officers in your area. They will ask you to fill out an application for consideration.
- Choose the loan officer with who you would like to work and have him/her prepare a preliminary business plan. This plan should be reviewed by all of your advisors before it is accepted by the SBA.
- Visit the SBA loan processing center to sign your business plan and have a face-to-face meeting with your loan officer and a representative from the SBA.
Approval for an SBA Loan
Even if you are approved, there is no guarantee that you will get a business loan with bad credit. Your chances of getting approved are greatly increased if you have collateral to pledge and a good personal credit score.
If your business plan is strong, then there are plenty of small business loans available to minorities in America.
The SBA isn’t just for minority entrepreneurs. They are a good option if you have been turned down by other traditional lenders, but this doesn’t mean that the process is without its pitfalls. Here are some of the most common complaints:
- Applications take too long to approve or get denied despite having good credit and collateral to pledge. Sometimes it can take months for your application to get processed and approved.
- The interest rates are too high. This is especially true if you need a small loan (less than $25,000) because the SBA doesn’t have as much negotiating power with their lenders as large banks do.
- It takes time to understand the application process. It is best to get help from a professional who can walk you through the entire process and help you get approved in as little time as possible.
- These are all valid concerns, but keep in mind that they only apply to small business loans for minorities with bad credit. If your personal finances are in good order, then you have nothing to worry about.
So there you have it: the best small business loans with bad credit. It is worth mentioning that some lenders will consider your personal credit score rather than your ethnicity or gender when determining whether or not to issue a loan.
How to Apply for Small Business Loans Under the Coronavirus Stimulus Bill
One of the best ways to get a small business loan if you have bad credit is to get assistance from your local state government. When the stimulus bill was passed in 2009, it included millions in funding for dozens of small businesses across the country.
Many financial institutions are now offering special financing programs through direct loans and lines of credit just for those who qualify.
Small business loans under the stimulus bill can be used to cover a wide range of expenses for any small business with bad credit or no credit history. However, there are some restrictions on the types of businesses that are eligible for these loans.
The following is a list of the SBA’s main requirements:
- You must have been in operation for at least 2 years.
- You must have a good business plan that outlines your short and long-term goals for the business.
- Your payroll cannot exceed $1 million per year or 24 employees, whichever is lower.
- The total cost of materials and services you are purchasing in connection with your loan request should be less than 35% of the total loan amount.
- You must have a minimum net worth of $100,000 or your business income cannot exceed $1 million per year.
In addition to these basic requirements, the SBA imposes more specific criteria on each loan program. Make sure that you read through the terms and conditions carefully before submitting your application for loans under the stimulus fund.
Frequently Asked Questions (FAQ)
Yes. However, getting a loan would be easier with a good credit score. Plus, you’ll also have better financing options at your disposal.
Yes, but it would take an even harder hassle. It would, however, be easier with collateral, or a co-signer with a strong credit score.
Can you get a business loan when unemployed? Yes, getting any loan always boils down to one thing – proving beyond any doubt that you can repay the loan.
You can do that by reducing your debts, paying your bills on time, avoiding new loans, and disputing any credit report errors.
SBA Microloans.
