February 11, 2019 | Mason Roberts

Small business owners have seen time and time again the struggle that bad credit creates. If you have bad credit, it is a battle to receive the little bit of funding, you need from a bank. Many times, an individual having poor credit has led the bank to believe they are a risk to invest in, as they may not pay it back when they should.

Why Is It So Hard?

Analyzing credit scores has become more necessary of a step in applying for small business funding. The economic state in today’s world has played a huge role in this, as it has become stricter and stricter over the years, meaning more intense credit checks and valuable collateral becoming more important. In order to obtain traditional small business funding, you have to really push for it.


When it comes to owning and managing a small business, it's important to have access to the funds you need when you need them. Though you may have an unfortunate credit score, that doesn't change the fact that you need funding in order for your business to succeed. Whether you're a small restaurant owner, run a low-key online business, or anything in between, you will need capital, especially if you have employees expecting a paycheck. If you're a small business owner, there's no denying that gaining knowledge on becoming successful despite your poor credit score is always a good idea. If you're a small business owner with bad credit looking for the funding to make it through a financial dry-spell or take your company to the next level, here are the top things you should consider.

Man thinking of how hard it is to get small business funding.

How Is Your Credit Score?

For starters, your credit score is determined by a system that is titled the 5 C’s, which indicate capacity, character, capital, collateral, and conditions, all of which are important. Within this system, a few key factors are reviewed, such as the payment history on your bills, valuables that can be used as your collateral, and an analysis of your current debt status. Your personal credit score is also determined through a descriptive word to score scale, such as:

  • Excellent (800-850)
  • Very Good (740-799)
  • Good (670-739)
  • Fair (580-669)
  • Poor (300-579)

When it comes to evaluating your personal credit, it's a good idea to follow this scale to get a simple but accurate idea of your existing credit score.

How Can You Improve Your Chances Of Receiving Small Business Funding With Bad Credit?

Get a Co-Signer

One of the fastest ways to help improve your chances at qualifying for funding is by providing a co-signer. The co-signer must have a good standing credit score or steady income to make up for where your credit is lacking. If you, as the borrower, are unable to repay your debts, however, the lender will then turn to your co-signer to complete the payment. Because of what being a co-signer entails, it may also be difficult to find someone with the right credit score who's willing to offer. When looking for a co-signer for your small business funds, it's a good idea to ask someone who knows you well personally - someone who knows they can trust you to complete payments on time.

Go for a Secured Loan

Collateral is something that will help you look like a lower risk as a borrower to potential lenders. In offering up collateral like your car, you're suggesting to them something of value; you're letting them know you're putting your money where your mouth is. This will bring more value to your finances, making you a more promising candidate to the lenders reviewing your request. It should also take some of the heat off of your bad credit status.

Woman holding funds from secured loan.

What Is The Best Way To Get Business Funding With Bad Credit?

When your goal is to obtain small business funding, though you have bad credit, there are a few necessary steps to follow for the most outstanding results.

Step 1: Awareness

First, you must be aware of your credit score. This is the most important aspect to consider right off the bat. When applying for funds, your credit score determines how reliable an investment you are to would-be lenders. Knowing your credit score will greatly help you when it comes to determining which types of funding you qualify for and which you don't. This will also save you a good deal of time and trouble, and help your business succeed in a nice, timely manner. When you're aware of your credit score, small business funding could be within reach sooner than you thought possible.

Step 2: Research

Secondly, you should do yourself a favor and really research your options. Small business funds are not something to be taken lightly. Being an entrepreneur who is seeking growth and success for your business can mean being patient when researching for business funding is the best decision. Initially, lenders determine the worth of your small business fund after reviewing some factors, such as:

  • Personal Credit Score
  • Annual Revenue
  • Time In Business

After taking these factors into account, keep doing your research on lenders who seem like a nice fit for your small business to thrive.

Step 3: Make a Decision

After considering all of the factors previously mentioned, you should now have a pretty good idea of which lender is best for you, so the last thing you have to do is make a decision. While you're doing this, you should also take some time to speak with a few lender associates from different companies. That was, you can see what some lenders can offer you that others may not be able, too. Regardless, whatever lending option you choose should help your small business blossom the way you always knew it could.

Online Funding vs. Traditional Business Funding

When applying for small business funding at a bank, they tend to have more stringent requirements in place to qualify. In every aspect of the processes, applying for small business funding at your local bank means more attention and time, which you may just not have. There are more documents to fill out and more details to consider all around. Online funding, in contrast, are much easier to receive. It's a much faster process with less documentation to fill out, which means more time to spend planning the next phase of your company's success. Lastly, the requirements to meet are more approachable and flexible, with a higher approval rate than traditional bank loans. Online lenders are a good fit for the new generation of people who are used to researching online in most situations. This has become an increasingly attractive option for small business owners like yourself who are looking for the capital their business needs to really flourish.

Now What?

Now, armed with this information across all fields when it comes to bad credit and different types of lenders, you have a lot more to consider in terms of what's right for you and your business. After taking a look at the best ways to further your business with bad credit into account, you have a better idea of the most effective ways to receive small business funding, and what works best with your business funding needs, regardless of your credit history. Best of luck with your small business, and happy borrowing!