How to get a business loan with bad credit

Plenty of good businesses are run by owners with bruised credit: a medical bill, a divorce, a slow year during a hard time. Banks weigh personal credit scores heavily, so a low score can make a traditional bank loan hard to get. But banks are only one kind of lender. A large part of today's small-business funding is built around a different question: is money coming into this business every month?

What funders look at besides your credit score

• Monthly revenue. Steady deposits in your business bank account are often the single most important factor.
• Time in business. Many funders want to see at least a few months to a year of operating history.
• Bank statements. Recent business bank statements show your cash flow, your average balance and how often the account runs low.
• Existing debts. What you already owe, and whether you keep up with it.
• Your industry. Some industries are considered steadier than others.

Credit still matters, and a better score usually means better terms. But with strong, steady revenue, a lower score is often a factor rather than a deal-breaker.

Funding options that can work with lower credit

Merchant cash advance

You receive a lump sum in exchange for a share of your future sales, usually repaid automatically from daily card sales or through fixed daily or weekly payments. Approval leans mostly on sales history, and funding can be fast. It's typically one of the more expensive options, so it fits best for short-term needs with a clear payoff, like stocking up before a busy season.

Revenue-based financing

Similar in spirit: approval is based on revenue, and repayment comes as fixed daily or weekly payments from your business account. It works well for businesses with consistent deposits.

Invoice factoring

If you bill other businesses and wait 30, 60 or 90 days to get paid, you can sell those unpaid invoices for cash now. Because the funder is relying on your customers paying, your own credit matters less.

Equipment financing

The equipment you're buying serves as collateral, which can make approval easier than an unsecured loan. Useful for trucks, kitchen equipment, machinery and more.

Working capital funding and lines of credit

Some funders offer working capital and revolving lines of credit to businesses with fair credit and good revenue. A line of credit lets you draw what you need and pay interest only on what you use.

How to improve your chances

• Keep business money in a business account. Clean, separate statements make your revenue easy to see.
• Avoid overdrafts and negative days in the months before you apply.
• Know your numbers: average monthly revenue, how long you've been open, and exactly how you'll use the money.
• Have your documents ready: usually a few months of business bank statements, an ID, and basic business details.
• Borrow what you need, not the maximum offered. A smaller amount you can comfortably repay builds a track record for better terms next time.

Compare offers the smart way

Costs are expressed differently across products: interest rates, factor rates, fees. Ask each funder for the total amount you'll repay, the payment amount and how often it's taken, and whether there's a discount for paying early. Several states now require funders to disclose the cost of commercial financing in a standard format, which makes comparing easier. Read the agreement before you sign, and ask questions until the numbers are clear.