Best Startup Business Loans For Bad Credit Of 2023 (2023)

As you shop around for a startup business loan, consider these tips:

• Find out the credit requirements. Every lender sets its own minimum credit score, so look for one that could be a good fit for your credit profile. Be wary of lenders that promise loans with no credit checks, as they may be predatory lenders that will charge sky-high rates and fees.
• Research other lender requirements, too. Some lenders may want to see a certain amount of business revenue or personal income before approving you for a loan. Requirements may be higher for bad-credit borrowers, as a lender wants to reduce the risk that you’ll default on your loan.
• See how high the interest rates go. With bad credit, you’ll likely get assigned higher rates on a startup business loan. Check out a lender’s range to make sure the rates don’t climb into unaffordable territory.
• Compare repayment terms and schedule. Find out how long you have to pay back the loan and whether you have to make payments on a daily, weekly or monthly basis.
• Watch out for loan fees. Extra fees can add to your costs of borrowing, so make sure there aren’t any surprise charges hidden in the fine print.
• Explore the lender’s customer service options. Ideally, you’ll find a lender that offers responsive customer support and a variety of contact options, such as phone, email or instant web chat.
• Read customer reviews. Finally, take some time to read reviews on respected sites like Trustpilot to see what other borrowers have to say about their experience with a lender.

When you’re borrowing a startup business loan, your business might not have built much of a credit score yet. As a result, your personal credit score will carry greater weight in your application.

On the FICO scoring model, a credit score of 580 or below is considered poor. Credit scores of 580 to 669 are considered fair, though applicants with these scores may still be considered subprime borrowers.

Some lenders offer bad credit startup business loans to business owners with credit scores starting at 500. Others have higher requirements of 550 or 600.

As mentioned, poor or fair credit may mean you get saddled with higher interest rates. You’ll need a good score of 670 or higher to qualify for more competitive rates.

Every lender sets its own requirements, but the process of applying for a startup business loan will probably be similar across the board. Here are the general steps you’ll need to take:

1. Review your credit profile. By knowing your credit score, you won’t waste your time with lenders who set higher score minimums. You can also go to AnnualCreditReport.com to request free copies of your credit reports from the three major credit bureaus—Equifax, Experian and TransUnion—to see if they contain errors that can drag down your credit score.
2. Work on improving your credit, if you have time. If you don’t have an immediate need for a startup business loan, take some time to improve your credit score. Disputing errors on your credit reports, reducing your credit utilization ratio, paying down debts and making on-time payments on loans can all help your score.
3. Prepare your documentation. You’ll need to provide documents such as your business plan, bank statements, business licenses and more to qualify for a loan. If you have bad credit, a lender may closely examine your revenue or business plan to ensure you can repay your loan on time.
4. Consider adding a co-signer or collateral to your loan. Qualifying for a startup business loan with bad credit on your own may be difficult. Adding a co-signer to your loan or securing the loan with collateral may make it easier to get approved. But be warned: If you find yourself unable to pay the money back, you can lose your collateral or destroy your relationship with your co-signer, who will be left on the hook for the loan.
5. Shop around with multiple lenders. Since your bad credit may lead to higher interest rates, it’s important to compare more than one offer for a startup business loan to minimize your costs of borrowing.
6. Submit a formal loan application. Once you’ve found a lender willing to work with you, submit a full application. The lender may contact you if it requires additional documentation to approve your loan.

Every lender sets its own borrowing requirements, so don’t assume that subprime credit will disqualify you from a startup business loan. Here are some types of loans you may be able to obtain:

• Term loans. Banks, credit unions and online lenders offer term loans that you can pay back over a period of time, often anywhere from three months to 10 years. Online lenders may be more lenient than banks about credit score requirements and can often offer faster funding times, too.
• Secured loans. A secured startup loan requires you to put up an asset as collateral. Secured loans may have more flexible credit requirements than unsecured ones because the lender can recoup your asset if you fall behind on payments.
• Business lines of credit. While a business loan offers a lump sum of funding upfront, a business line of credit lets you draw out funds as you need them and pay them back on a revolving basis, often for up to five years.
• Working capital loans. A working capital loan is a short-term loan you can use to cover day-to-day operations. It may be easier to qualify for than a long-term loan if you have bad credit.
• Equipment financing. This helps you purchase equipment for your business. It’s typically a secured form of debt that uses your equipment as collateral.
• Invoice factoring. Sell unpaid invoices to a factoring company at a discounted price in exchange for immediate cash.
• Merchant cash advances. Receive a lump sum upfront that you’ll pay back with automatic deductions from your future credit and debit card sales.

While the lowest interest rates are reserved for the most creditworthy borrowers, you’re not necessarily out of luck if you have bad credit. Your rates may be higher, but it could still be possible to qualify for a startup business loan.

Make sure to review your loan offer before borrowing, as you wouldn’t want to take on expensive debt you can’t afford to pay back. Compare your options for startup business loans for bad credit carefully to make the best financial decision for you and your company.

We reviewed 16 popular lenders based on 14 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the best lenders based on the weighting assigned to each category:

• Loan cost: 25%
• Loan details: 25%
• Eligibility and accessibility: 20%
• Customer experience: 20%
• Application process: 10%

Within each major category, we also considered several characteristics, including available loan amounts, repayment terms and applicable fees. We also looked at minimum credit score and time-in-business requirements. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like online applications, prequalification options and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

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