Best Startup Business Loans for Bad Credit in 2021

Best Startup Business Loans for Bad Credit

Searching for startup funding is hard enough, but when you mix in bad credit, it’s even more of an uphill battle. A bad credit score is typically thought of as a score of 579 and below, which is not high enough to meet the lending requirements of most traditional banks. 

Of course, not all lenders will disqualify startups based on bad credit alone—you just have to be strategic about which lenders to apply to, your available financing options, and ways to potentially boost your credit score in the meantime. 

That said, here’s our guide to five of the best startup business loans for bad credit.

Top 5 Bad Credit Startup Business Loans

Lender Loan Type Interest Rates Time in Business Minimum Credit Score Best For
Invoice factoring
Starting at 0.25% per week
Three months
530+
B2B businesses
Business line of credit
Starts at 4.66% of draw amount
Three months
500+
Business line of credit; businesses with lower credit scores
Term loans
Starting at 7% APR
No minimum requirement
550 to 575+
Microloans for startups
Short-term loans
Factor rates range from 1.1. to 1.3
Six months
No minimum requirement
Businesses with little to no credit
Short-term loans
Factor rates start at 1.15
Six months
500+
Working capital loans

As you can see based on this overview, although you might imagine a startup loan as a term loan—a lump sum loan paid back over a set period of time—startup business loans come in various forms.

In fact, when it comes to startup loans for bad credit, some of your best options will be other types of financing products, including lines of credit, invoice factoring, and even business credit cards.

Let’s break it down.

1. BlueVine

Best for B2B businesses.

If you’re a B2B business looking for a startup loan for bad credit, you might turn to BlueVine’s invoice factoring. Invoice factoring, also known as accounts receivables factoring, is a popular method of getting startup business financing because it primarily relies on the strength of your customers’ invoices for qualification and not so much on your credit score. 

Loan Details 

If you’re wondering what invoice factoring is, here’s the general rundown—if you have an outstanding invoice with a customer, you essentially “sell” your invoice to the factoring company, who will then issue you capital equal to a percentage of your invoice (this typically ranges from 70% to 95% of the invoice value). Once your customer pays the invoice, the factoring company issues you the remainder of the invoice minus their fee. 

Invoice factoring is typically exclusive to B2B startups and businesses, and we highly recommend it to startups that have outstanding receivables. BlueVine’s invoice factoring product is one of the best online factoring solutions on the market because they’ll factor invoices up to $5 million, with interest rates ranging from 0.25% to 1.7% per week. 

Eligibility Requirements

BlueVine’s invoice factoring eligibility requirements are great for startups with bad credit. To qualify for BlueVine invoice factoring, your business simply needs:

  • At least $120,000 in annual revenue
  • A 530 credit score 
  • At least three months of business history

2. Fundbox

Best for businesses with lower credit scores; best for a line of credit. 

Fundbox, like BlueVine, is an online lender that provides working capital loans to small businesses using an online platform. Fundbox is best known for their startup business line of credit, which is great for newer businesses that need funding for unexpected expenses or cash flow shortages. 

Loan Details 

Fundbox’s business line of credit ranges from $1,000 to $100,000. Interest rates start at 4.66% of the amount you draw from the credit line.

That said, Fundbox’s startup business line of credit can be paid back over 12 or 24 weekly installments. Fundbox’s line of credit is unsecured, which means it does not require any collateral. 

Eligibility Requirements

Fundbox’s eligibility requirements are great for startups with bad credit. To qualify for one of their business lines of credit, you’ll need to have: 

  • A credit score of at least 500
  • Annual revenue of $50,000
  • Three months of business history

You’ll also need a business bank account or online accounting software in order to prove your sales history.

3. Accion USA

Best for microloans.

Accion, the largest nonprofit microloan lender in the U.S., offers small business startup loans for bad credit. Accion lends to all sorts of small businesses and startups in various industries, and thousands of startups have used Accion to finance their business.

Loan Details 

Accion offers term loans between $300 to $300,000. Term loans are basically lump sums of cash paid back weekly or monthly, with interest, over a period of time. 

Accion’s loan rates start at 7% APR, which are some of the most affordable in the online loan marketplace—especially for startups. 

Eligibility Requirements

When you apply for a loan at Accion, the minimum eligibility requirements you need to meet will vary based on your location. However, you’ll also need to meet Accion’s general basic requirements, which include: 

  • The ability to show two most recent pay stubs 
  • At least a year of on-time mortgage payments
  • No declared bankruptcy over the past year
  • No more than 30 days late on any bills 
  • A credit score of 575 (550 in certain states)
  • Sufficient cash flow to repay the loan

As a startup, you’ll also have to meet these additional qualifications:

  • A business plan with a 12-month cash flow projection
  • An outside income source
  • A partner referral (e.g., SCORE or SBDC)
  • Less than $3,000 in debt

4. Fora Financial 

Best for businesses with little to no credit.

Fora Financial provides short-term small business loans and merchant cash advances to small businesses and startups. What differentiates Fora Financial is that they don’t have a hard credit score requirement. 

As long as you meet their basic requirements and have no bankruptcies, you might be able to qualify for one of their startup loans.

Loan Details 

Fora Financial’s small business loan ranges from $5,000 to $500,000, with loan terms ranging from six to 15 months. Factor rates on these short-term loans can range from 1.1 to 1.3.

Payments can be made daily or weekly and Fora Financial does not charge a prepayment penalty for making early payments on your loan. 

Eligibility Requirements

To be eligible for a bad credit startup loan from Fora Financial, your business must meet the following requirements: 

  • Have at least six months of business history
  • $12,000 per month in gross sales
  • No open bankruptcies

If you decide to apply to Fora Financial, keep in mind that they will do a soft credit pull to check your credit even though they don’t ask that you meet a minimum requirement.

5. Credibly

Best for working capital loans.

Credibly, another alternative business lender, offers working capital loans to startups. They also offer other forms of financing, such as business expansion loans and merchant cash advances, but these aren’t going to be suitable as financing products for startups with bad credit. 

Loan Details 

Credibly’s working capital loans are available in amounts up to $400,000. The loan terms vary between six to 18 months, and factor rates start as low as 1.15. They also charge a 2.5% origination fee.

Eligibility Requirements

To qualify for a working capital loan from Credibly, you will need to have:

  • A minimum FICO score of 500+
  • Average monthly bank deposits of $15,000+ 
  • Six months of business history 
  • A business bank account

It’s also worth noting that Credibly is willing to work with startup founders who have declared personal bankruptcy, but two years must have elapsed since discharge. 

Alternative Financing Options for Startups With Bad Credit

Finding and qualifying for a small business startup loan with bad credit is never easy. In addition to the options listed above, you may want to consider looking into these alternative ways to finance your startup as well.

Business Credit Cards

Business credit cards can be a flexible, scalable way to fund your startup. Just keep in mind that you don’t want to overly rely on them because you can quickly find yourself in a vicious debt cycle. 

Business credit cards are also not ideal if you’re looking for large amounts of funding. That said, if you decide to use a business credit card to finance your startup, we recommend trying to get a business credit card with a reasonably low APR so that you’re not accruing significant interest as you pay off your balance.

Use our guide to compare the best business credit cards for startups.

Grants 

Grants are another popular financing option for startups because they’re essentially free money. There are several grant programs or competitions for startups specifically—and if you have the time to write a compelling grant application, you might want to look into grant funding. The downside to grants is that oftentimes they come with strings attached, in that your progress may be monitored by the grant organization, and they’re highly competitive.  

With that in mind, when searching for startup grants, make sure to start locally, then continue searching by region. You’ll most likely be able to find a few grant programs for startups, and if not, you may want to consider broadening your search to national startup grant programs. 

Crowdfunding

Crowdfunding allows you to raise money from contributors who believe in your startup. 

There are many different types of crowdfunding, from donation- to equity-based, and all you really have to do is convince people why your startup is worth the investment using a crowdfunding platform like GoFundMe or Kickstarter. 

Crowdfunding is generally better for early-stage startups that need fast cash to fund their business idea. 

Investors

If you’re willing to give up a little equity for some funding, seeking outside investments from angel investors or venture capitalists might be worthwhile. 

Investors may be willing to overlook your credit history if you have a rock-solid business plan and they can see the commercial viability of your product. 

Frequently Asked Questions

Can I get a startup business loan with bad credit and no collateral?

Yes, it’s possible to get a startup business loan even if you have bad credit and no assets to offer as collateral. However, lenders that don’t require a good credit score or collateral generally ask for a personal guarantee. 

A personal guarantee means that you, as the business owner, will be held liable to make repayments on the loan in the event your business defaults and cannot repay. 

Is it hard to get a startup business loan with bad credit?

It can be hard to get a startup business loan with bad credit. Credit history is one of the most common requirements a lender will look at when evaluating a loan application.

That said, you may have an easier time getting a startup business loan with bad credit if you turn to online or alternative lenders. These lenders tend to have higher interest rates, but generally, their requirements aren’t as strict as traditional banks. 

The Bottom Line

We won’t sugar coat it—getting a startup business loan with bad credit will very likely be challenging. But, it’s not impossible to get financing as long as you’re open to the possibility of working with alternative lenders and not traditional banking institutions. 

You’ll also want to keep in mind that if you’re a newer startup, you may want to hold off on looking for financing until you’ve been in business for about three to six months, which is the cut-off for most alternative lenders. 

That said, if you’re facing difficulties getting financing from lenders, we suggest looking into alternative financing options such as grant programs, crowdfunding, friends and family, or equity financing—or, work on building your credit score until it’s strong enough to continue your funding search.

Zoe Weisner

Zoe Weisner is a contributing writer at JustBusiness. Previously, Zoe worked at BlueVine, a fintech startup that provides working capital to small businesses. At BlueVine, Zoe worked with small business owners to understand their financial needs and wrote content about small business-related topics, including marketing, business operations, and small business financing. Today, Zoe writes articles about personal finance, small business, and banking.

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