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Most small to mid-sized start-up businesses typically require extra capital within the first few years of being operational. That being said, this situation isn’t unique to any specific kind of business. This is something that happens to almost all new companies, whether it’s to help with temporary cash flow issues, expansion, or to hire additional employees. It is also something that all business owners need to account for and figure out a way to correct.

Unfortunately, if you haven’t had time to establish your companies’ independent credit history or your own personal credit history isn’t quite as high as you’d like it to be, you might find it difficult to get the funding you need to improve and grow your business.  In cases like this, being approved for the business loan you need and want can be more difficult than you originally thought it would be. This is why it’s extremely important that you are prepared to face your potential lender and have a solid understanding of what you need from them.  

Evaluate Your Needs

Sit down and re-evaluate your business’s finances. What are your current financial needs? What do you want to do with the loan? How do you plan on paying it back? And finally, ask yourself if your plan can be accomplished without a loan or with a smaller loan? For business owners with bad credit, more often than not, their major concern is that they will be rejected for the financing they need to grow their company. This is, of course, a valid concern as lenders typically want to lend to individuals or companies that have good credit. If after you’ve re-evaluated your situation and still feel as though you need a loan, make an appointment with a potential lender. Discuss with them your current credit situation and ask about alternative options and smaller loans.

Types of Bad Credit Small Business Loans

Merchant Cash Advances

Consider looking into a merchant cash advance. If you only need a few thousand dollars due to cash flow issues then this could be a great option for you. A merchant cash advance lender will provide you with a sum of money in exchange for a percentage of your daily credit card or debit card transactions. Your lender will continue to take this percentage until you’ve fully repaid them. 

Government Funding

The Government of Canada has been helping small businesses for years get the funding they need. The Canada Small Business Financing Program shares some of the risk the lender takes on when they provide loans to small businesses. Less risk makes it possible for a lender to approve more loans for small Canadian businesses. This program allows:

  • Start-ups to get the funding they need to open their doors.
  • More established businesses to expand and make improvements and upgrades.
  • Small businesses to have access to loans they wouldn’t otherwise have access to.
  • Create new jobs in Canada and stimulate economic growth.

Check out the Government of Canada’s website for information on The Canada Small Business Financing Program.

Secured Loans

If you’re having trouble getting approved for a business loan because of your poor credit you might want to consider a secured loan. A secured loan requires you to put up some type of collateral, typically this can be an asset that your currently own. It’s important that you discuss with your potential lender what type of collateral they can accept and the risks associated with securing a loan. Secured loans are great because they can allow you to get the financing you need but just remember that if you default on your loan you could have your asset seized.

Alternative Lender

If you’ve applied for a business loan from banks and other traditional lending institutions and you’ve been rejected you might want to consider an alternative lender. Private lenders tend to be more lenient and often don’t even check potential borrower’s credit histories or scores. There are countless private lenders out there who want to help you get the funding you need and who are willing to work with you instead of against you. Do some research and you should be able to find a great lender who can forge a professional relationship with.

Best Bad Credit Small Business Loan Providers

AmountAPRTerm (months)
SharpShooter Funding1k-300kFee-Based: Starting at 9%12- 60 Learn more
OnDeck5k-300k8% – 29% 6-18Learn more
Lending Loop1k-500k+5.9%3-60Learn more
Thinking CapitalUp to 300k8%-22%6-12 Learn more
Merchant Growth5k-500k-6-18Learn more
BDC100K +6.05% +60Learn more
IOU Financial5K-100k15%+12-18Learn more

Increase Your Approval Odds

As previously mentioned, having bad credit can reduce your ability to get your business the financing it needs. However, this doesn’t have to be the case, with the right tools and preparation, you can still get a business loan. 

  • Have a Business Plan – Having a business plan can give you the edge you need to get approved for a loan, even if your credit isn’t that great. A business plan that illustrates how your business will grow and how you plan to use the loan is key in building your lender’s trust and presenting yourself as an attractive candidate. These business plans are typically between 2-3 pages long. 
  • Create a Financial Projection of Your Future Sales – Providing your lender with an accurate projection of your future sales or cash flow can help build your lender’s trust. The more accurate and financially stable you look on paper the more likely your lender will approve you for a business loan. 
  • Improve Your Personal Credit Score  –  If you’re a young business, most lenders will look to your personal credit score. As such, improving your personal credit score by making full on-time payments and reducing your credit utilization ratio can help show your lender you are a creditworthy person to lend to. 

What Information Do You Need to Provide to Get a Small Business Loan?

No matter which type of business loan you apply for, you’ll usually have to provide the following information.  Be sure to review your application when completed as any errors can result in your application being rejected. 

  • You’ll need to provide personal information such as your full name, contact information, SIN number and more. 
  • You also may need to provide your personal financial information such as your income, and business bank account details.
  • You’ll also need to provide your business details such as your business name, industry, time in business, address, phone number and more. 

Documents You May Need to Provide During or After Application

When you apply for a business loan, there are certain documents you may need to provide during or even after you’ve sent in your application. Failure to provide these documents when asked can result in your application being rejected. 

  • Bank Statement – Most lenders will want to see your bank statements in order to evaluate your business’s cash flow and daily balance. These numbers give lenders an understanding of your ability to repay them and how likely you are to default on a loan.
  • Balance Sheet – Lenders will use your balance sheet to verify your total assets and liabilities.
  • Income statement – Lenders may also want to see your income statement in order to evaluate your expenses, cost of goods sold and your overall net income.
  • Tax Returns – Some lenders may ask for your business tax return in order to verify your income. The amount you’ve indicated in your application should not have any major discrepancies from your tax return. 
  • Business Plan – Most lenders want to see your business plan if you are a small or new business. Having a solid business plan that shows how you will use the loan and how you intend to grow your business, will help you earn your lender’s trust.  

Don’t Give Up

One of the most important things you can do is to not give up, even if you have bad credit. There is an abundance of other financing options out there for you and your business so don’t panic if banks and other more traditional financial institutions won’t lend you the money you need. 

Caitlin Wood avatar on Loans Canada
Caitlin Wood

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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