Don’t Fret: We Have Your Guide to Business Loans for Bad Credit

""

Not everyone has the means to fund their business internally, so many owners look to gain access to a small business loan. However, accessing credit can be a challenge for small business, especially those with bad credit.

If you do have bad credit and a traditional bank loan is out of reach, there are alternative lenders that offer different funding options. Some of these lenders have no credit score requirements and consider other factors such as business revenue or how long the business has been established.

Can I Get a Business Loan With Bad Credit?

Let’s get a better understanding of what bad credit really means. “Bad credit” typically refers to an individual having a poor credit score (FICO score lower than 640). Your credit score essentially represents how reliable you are at repaying your debts. If you have an unsuccessful history of repaying your debts, your credit score will reflect that.

To qualify for a bad credit loan, your FICO score needs to be at least 600. A FICO score is the most common of credit scoring models used today, and the second would be VantageScore.

The FICO credit score ranges are as follows:

  • Exceptional (800 – 850)
  • Very good (740 – 799)
  • Good (670 – 739)
  • Fair (580 – 669)
  • Poor (300 – 579)

The VantageScore is a similar model, but its ranges are slightly different:

  • Excellent (750 – 850)
  • Good (700 – 749)
  • Fair (650 – 699)
  • Poor (550 – 649)
  • Very poor (300 – 549)

Business owners with a credit score in the range of 300 to 669 can find it challenging to get approval for a loan from a traditional bank lender. If you find yourself in this position, don’t fret — there are several alternative lending options that may be right for your small business.

What’s Alternative Lending?

Alternative lending describes the vast range of funding options available to consumers and business owners instead of a traditional bank loan. Alternative financing options are used most commonly when an individual or business owner is unable to get a traditional bank loan due to bad credit or other reasons.

Alternative lenders tend to be more flexible than banks in regards to loan requirements, approvals and repayment schedules. It’s important to note that the average interest rates are usually higher than traditional bank loans.

If alternative lending sounds like the right option for your small business, check out our guide including several options below.

Accion

Accion is the largest nationwide nonprofit lending network in the U.S offering small business loans of $10,000 to $100,000. The entity focuses on specialized and underserved businesses, such as green business, startups and women- and minority-owned businesses.

  • Pros:
    • Focuses on startups that have been established for six months or less
    • No business revenue requirements
    • Term length can be up to 60 months
  • Cons:
    • Requires collateral and equity to be eligible for a loan (real estate, for example)
    • Loan limits of $100,000 in six U.S. states, $20,000 in two states and $10,000 in the rest of the U.S.
  • Loan Types: Term loans
  • Min. credit score: 575
  • Min. years in business: 0
  • Min. annual revenue: 0
  • Initiation Fee: N/A

Kabbage

Kabbage specializes in very small businesses, offering flexible lines of credit with a simple application process and straightforward loan rates and terms. The company has supported thousands of businesses with over $4 billion in loans.

  • Pros:
    • $50,000 minimum in revenue requirement (one of the lowest among alternative lenders)
    • Lines of credit have a wide range, between $2,000 to $250,000
  • Cons:
    • High APR
    • Term lengths are six to 12 months
    • An additional monthly fee of 1 percent to 10 percent every month you carry a balance
  • Loan Types: Line of credit
  • Min. credit score: 550
  • Min. years in business: 1
  • Min. annual revenue: $50,000
  • Initiation Fee: N/A

QuarterSpot

QuarterSpot provides small business loans in as little as one day with clear direction at a fair price. They are best for business owners who can pay off the loan before the term is up.

  • Pros:
    • Quick application process
    • No personal credit checks or personal guarantees required
    • Loan amounts beginning at $5,000 and up to $1,000,000
  • Cons:
    • Partial prepayment not allowed
    • High APR
    • High annual revenue
  • Loan Types: Term loans
  • Min. credit score: 550
  • Min. years in business: 1
  • Min. annual revenue: $192,000
  • Initiation Fee: 2 percent to 3.5 percent

LendingClub

LendingClub is the world’s largest peer-to-peer (P2P) lending platform and has facilitated $28 billion in loans for more than 1.5 million borrowers.

  • Pros:
    • Flexible payment terms
    • Quick application process
    • Funding provided to small business owners in as few as seven days
  • Cons:
    • A line of credit of more than $100,000 requires a lien. A lien means the business owner must put up the liquid assets of their business as collateral.
    • Small business owners with poor credit and low annual revenue aren’t likely to qualify for Lending Club’s lower APRs
  • Loan Types: Term loans, lines of credit
  • Min. credit score: 600
  • Min. years in business: 2
  • Min. annual revenue: $75,000
  • Initiation Fee: N/A

OnDeck

OnDeck is best known for providing lines of credit and term loans for small business owners and has supported more than $7 billion in financing.

  • Pros:
    • Offers up to $100,000 in lines of credit with some of the lowest minimum credit score requirements available
    • Term loans are available for up to 36 months and lines of credit for up to six months
  • Cons:
    • Requires a blanket lien on all business assets
    • Requires a commitment to either a fixed daily or weekly payment schedule
  • Loan Types: Term loans, lines of credit
  • Min. credit score: 500 for term loans, 600 for lines of credit
  • Min. years in business: 1
  • Min. annual revenue: $100,000
  • Initiation Fee: 2.5 percent

Many small businesses have to utilize non-traditional business credit and business loans. Alternative sources of business funding provide another option to support the success of your small business.

Do you have experience with one of these alternative lenders? Let us know on Twitter @Revenued_com.

We're working on some pretty cool new pieces of content, including tools that will give you insight into your business finances.

Want to be the first to know when they launch?

Dig Deeper into Business Loans

What Documentation is Needed for the Paycheck Protection Program (PPP)?
What Documentation is Needed for the Paycheck Protection Program (PPP)?

The SBA Paycheck Protection Program (PPP) is designed to help small businesses and independent contractors who have been negatively impacted by the COVID-19 pandemic. Despite it being quick and fairly simple to apply using Revenued’s automated application powered by Cross River Bank, some business owners may still face confusion over what documentation they need to […]

What Rewards Can Be Earned with the Ink Business Cash Card?

The Ink Business Cash Card by Chase is a credit card that offers back cash bonuses on purchases you make using the card.  And unlike many business credit cards, there is no annual fee. This appealing feature benefits small companies that may not earn enough rewards to offset the high upfront costs associated with other […]

What Is Required to Open a Business Checking Account?

The specifics of what you’ll need to open a business checking account will vary based on your company’s legal entity type. In other words, bankers will ask for significantly different documentation from a corporation than they will from someone running a small business as a sole proprietor. When filling out your application, you will likely […]

5 Essential Small Business Banking Tips

Financial management is an entrepreneur’s top priority — especially when running a small, relatively new company.  Unfortunately, most small businesses fail within 10 years of opening their doors. The reason 82% of business owners gave for closing down? Cash flow management problems.  What can you do to optimize cash flow and keep better track of […]