Big and small businesses both default on business loans, yet it is much harder for a small business than a larger one to get a loan if they don’t have good credit. The global financial crisis demonstrated that all businesses can be crippled. Most banks however, see small businesses as greater risks and for that reason will be less likely to award a business loan. This is even more apparent when the business attempting to obtain a loan has a bad credit score. But as a good small business with regular revenue, there are many things you can do in order to get a loan with a good interest rate —despite having bad credit.

small business bad credit

The Need for Capital

The problem facing most small businesses that are looking to grow their business is a lack of capital. There are often plenty of business improvements which simply need to be implemented—such as improving efficiency with new equipment or more staff. These types of improvements will increase the profit of the business greatly, yet the loan required to make them often comes with a very high interest rate— if you as the small business owner have bad credit. So now you need to determine if the profit gained by the business improvement will be outweighed by the interest on the loan.
These are the situations where bad personal credit can really affect your business because the interest rate you are offered by the big banks will be hugely dependent on your credit rating. Once you understand the way banks and other financial institutions determine if they should lend to a small business, you can increase your chances of getting a loan with a low interest rate. You should understand that it is often cash flow based loans which are more effective for small businesses with bad credit.

How Banks Award Loans

The view many banks and other lenders take on credit scores is that if the score is below a certain threshold, for instance 75/100— then they will not award the loan. While there are other things which the banks take into consideration, they will still have a minimum number for the credit score. This is the same for all lending institutions, but the minimum score will vary depending on other strengths of the business which are considered when making the decision. These things may include things like the cash flow of the business.

The Solution?

The main thing that the lender wants to do is minimize risk, so you need to show that you are able to pay back the loan in due course. The best friend to the small business with bad credit in this situation is a financier which puts more weight in their decision on cash flow rather than credit scores. This is known as factoring, and there are many such factoring companies countrywide — example 48 Factoring Inc. in Pennsylvania. These factoring companies look at how much you’ve earned in the last 12 months and determine if you eligible for working capital.


Financing which is based primarily on your business’ cash flow can typically be awarded faster than standard loans by the banks. Essentially, if there are regular deposits in the business account and the annual revenue is greater than $100k, most small businesses can qualify for working capital. These are typically up to 10% or more of the total revenue. Choose the alternative to bank loans and live easy!