Small Business Loans For People With Bad Personal Credit

Small Business Loans For People With Bad Personal Credit

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated December 22, 2022

Gaining access to capital is one of the hardest things to do as a business, but a necessary one to grow and run the business. Unfortunately, poor credit can prevent business owners from getting the money they need to help grow and improve their company. The good news is that banks and other traditional lending institutions aren’t the only lenders who provide small business loans. There are countless other options for small business owners who have low credit scores.

Here’s how to get your business funded when you have bad personal credit.

Can You Get A Small Business Loan With Bad Credit?

Under the right circumstances, you may be able to acquire a small business loan with bad personal credit or bad business credit. Then again, it can be pretty difficult to qualify for a traditional business loan with a reasonable interest rate, because borrowers who have bad credit are typically considered riskier clients.

To qualify for a bad credit business loan, you must show the lender that your company has a good, stable cash flow that can cover the loan payments. You may even need to provide collateral to give the lender some extra security in case you default. If you can’t qualify or don’t want to offer one of your assets, applying for a merchant cash advance may be an easier option. 

Where Can You Get a Small Business Loan With Bad Credit? 

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

How To Apply For A Small Business Loan?

Depending on where you look, obtaining a small business loan can be a complicated process, especially if you don’t have great credit. Here’s what you should do to apply:

Step 1. Compare Lenders To Find the Best Deal

Every lender has different loan sizes, interest rates and conditions. Shop around to find the best offers and watch out, as financial institutions charge higher rates for less creditworthy applicants. Plus, some lenders don’t disclose their rates upfront, so get pre-qualified too if you can.      

Step 2. Verify Your Lender’s Qualification Requirements

Each lender has their own requirements, when you apply, be sure to give your lender various details, like your annual revenue, time in business, payroll information and existing debts. As mentioned, some lenders will also ask for collateral, a cosigner or other forms of security before they can approve you. 

Step 3. Submit Your Application

Once you fill out all the details, you can submit your application online, in-person or by phone. Like prequalifying, this should be a free process. Keep in mind that it may take several days to approve and deposit your loan, so funding time is another consideration to make when comparing lenders. 

Documents Needed to Obtain a Small Business Loan

When evaluating your small business for a potential loan, your lender might ask you for a variety of documents and information related to your company, such as its:

  • Canadian business number and credit score(s)
  • Payroll details (number of employees, management staff, etc.)
  • Latest banking, revenue and debt statements
  • Tax papers and identification numbers
  • Business plan 
  • Profit, loss and cash flow statements
  • Balance sheets

Types of Small Business Loans For Bad Credit 

If your small business has a bad credit score or payment history, don’t worry. There are a number of options you can apply for to acquire funding, including but not limited to:

Merchant Cash Advances

A merchant cash advance is a type of upfront cash payment that your lender provides in accordance with your company’s future debit and credit card sales, rather than its credit scores. Your business (as the merchant) will gradually repay the amount of funding it borrows by regularly remitting a fixed percentage of its card sales directly to the lender.   

Business Collateral Loans

One of the easiest ways to qualify for a business loan is to offer the lender collateral. Generally, this must be a fixed asset with an adequate value, like a building, business vehicle or another piece of property. If you default, the lender gets to recoup their loss by selling your asset. As a result, they may be willing to overlook your bad credit score.     

Government Loans

The government of Canada offers a number of financing options to help businesses in Canada. For example, your business might qualify for the Small Business Financing Program (SBFP), a government-backed entity that shares partial risk with a lender. Essentially, the lender provides and manages the loan, while the SBFP guarantees fixed portions of unpaid debt if you default, so they’ll feel better about approving a candidate with bad credit. 

Private Business Loans       

There are also many alternative business lenders in Canada that can offer you a private loan with the same traditional structure as a bank loan (where the money is given to you upfront). Although they may use your credit score to assess your creditworthiness, the lender usually considers a wide variety of factors when approving applicants. Moreover, these lenders often charge higher rates than banks to make up for the added risk they take by accepting individuals or businesses with low credit. 

Peer-To-Peer Financing

Accessing to this type of funding is done through specific websites where after submitting your loan proposal, private lenders will read through your proposal and then approve it should they like what they’ve read. For a small business owner with a low credit score, this option is a relief as the interest rates can be low and the entire process is completed online. It is one of the best options for small business owners who have bad credit and need a loan.

Tips On Getting A Small Business Loan With Bad Credit

While your company’s cash flow is really important during the approval process, most business lenders will look at the whole picture when they evaluate your business for a loan. Here are a few tips to help you qualify for a small business loan with bad credit:

  • Check Your Personal and Business Credit Scores – Before applying, make sure to request copies of your personal and business credit scores from every credit bureau. Doing this at least once a year is an excellent way to understand how lenders will judge your application.  
  • Work To Improve Your Credit Scores – If your credit scores are bad, consider reviewing your personal and business credit reports to see if there are any errors. If not, you can slowly improve your scores by consolidating debts, making timely payments, reducing your credit utilization ratio and building a solid credit history.    
  • Prepare Your Business For Inspection – Business loans are risky, so lenders will review documents such as your business plan, financial statements, licenses and legal forms. You must also describe any collateral you’re offering and how you’ll use the funds. These elements must be strong to qualify for a small business loan with bad credit.  
  • Look For A Co-Signer – If you can’t get a business loan by yourself, someone with a higher credit score (like a business partner) could co-sign your application. This can make it easier to qualify for a large loan with a better rate, since that person is agreeing to take over your payments if you’re unable to make them. 

Bad Credit Business Loans FAQs

Can you qualify for a small business loan if you have bad credit?

Yes! It’s definitely possible to acquire a loan if you have bad personal or business credit. However, it’ll probably be harder because lenders are generally less willing to approve clients who have more risk of defaulting on payments (which bad credit can indicate). All your company’s other financial aspects must be in good shape in order for it to qualify.     

Do lenders associate certain industries with more risk?

Yes. Unfortunately, if its industry involves larger capital expenditures or tougher competition, your business may not qualify for a bad credit business loan because lenders will consider it more risky than others. So, unless you’re able to demonstrate a very strong business plan and future cash flow, a merchant cash advance may be easier to acquire.    

What does a lender want to see when lending a bad business loan?

This depends on where you apply and what type of financing you’re applying for. That said, most lenders want to see your business’s ability to cover its loan payments on schedule, which is why they’ll normally look at information and documents like your:
  • Personal identification and business registration numbers
  • Credit score and payment history (personal and business)
  • Most recent financial statements
  • Revenue, cash flow and debt projections
  • Strategic plan for the funding provided     

Are there bad credit business loans with guaranteed approval?

Sadly, there’s no such thing as a bad credit business loan that’s 100% guaranteed to get approved. As the applicant, your odds of approval are completely up to the lender. While some lenders are more lenient on borrowers who apply with bad personal or bad business credit, others may deny your application for various reasons, including:
  • A lengthy history of late, incomplete or missed payments
  • A large amount of outstanding debt toward other lenders
  • False information about your profit margins, liabilities or other business vitals
  • Inadequate loan security (no collateral or co-signer, etc.) 

Need A Small Business Loan But Have Bad Credit?            

Having a low credit score can be a huge hindrance when trying to access the extra capital you need to improve your growing business. That said, there are still ways you can get the funds you need to improve or grow your business. However, it’s recommended that you work towards improving your credit score in order to access credit at affordable rates.

Rating of 4/5 based on 3 votes.

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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