If you have bad credit — a personal FICO score between 300 and 629 — applying for a small-business loan from a bank will likely end in rejection.
But online lenders might offer you small-business loan options. They use algorithms to analyze borrowers’ creditworthiness based on a combination of data points, not just credit score.
“A lot of the small-business lenders are assessing the health of your business, not the health of your personal finances,” says Matt Burton, chief executive officer and co-founder of Orchard Platform, a software company for institutional investors and online lenders. Additionally, some online small-business loans can help boost your business credit, if the lender reports to a business credit bureau.
Here are four small-business loans for those with bad credit.
For businesses that need a loan fast: OnDeck Capital
If you need money for long-term investments such as equipment, renovations, real estate or expansion, OnDeck’s term loan is an option. To be eligible for an OnDeck loan, business owners must have a minimum credit score of 500, have at least $100,000 in yearly revenue, and have been in business for at least one year. If you have bad credit, an OnDeck loan can help build your credit score, since the lender reports to three business credit bureaus. Just make sure that your bank account has enough cash to cover OnDeck’s daily or weekly automatic deductions, or your credit score could take a hit.
With OnDeck, you can get funded in as little as 24 hours. But quick access to cash comes at a price: OnDeck’s average annual percentage rate is 47%, according to a June 2015 public filing. OnDeck’s small-business loan rates, however, have dropped as the lender tries to expand its appeal beyond borrowers with bad credit.
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Get StartedApply on OnDeck’s secure site |
For businesses that need working capital fast: Kabbage
If you need money for short-term working capital, such as to make payroll or buy inventory, a Kabbage line of credit may fit the bill. You could still qualify even if you have bad credit – personal credit score is not a primary criterion in the Kabbage underwriting algorithm, says Ann Noder, a Kabbage spokeswoman. Instead, borrowers give Kabbage access to their checking accounts and other business accounts, such as QuickBooks, Square or Etsy, and Kabbage uses data from those sources to make lending decisions.
Also, borrowing from Kabbage could help boost your credit, because the lender reports to business credit bureaus. Kabbage lines of credit can be funded in minutes, but the price for quick capital is high; Kabbage APRs range from 20% to 113%.
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Get StartedApply on Kabbage’s secure site |
For businesses that have a lot of invoices: Dealstruck
If you have cash tied up in unpaid invoices, consider Dealstruck’s asset-based line of credit, which allows you to borrow up to 85% of your accounts receivable. The company also offers revolving lines of credit for businesses that need to finance inventory and term loans up to $250,000 for long-term financing.
You can still qualify even if you have bad credit. To make lending decisions, Dealstruck weighs revenue, cash flow and profitability more strongly than personal credit score, says Ethan Senturia, the company’s co-founder and chief executive officer. Dealstruck has a “soft” FICO score minimum of 600 but has accepted scores in the 500 range, Senturia says. Dealstruck doesn’t report to any business credit bureaus, however, so if you have bad credit, a Dealstruck loan won’t boost your score.
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Get StartedApply on Dealstruck’s secure site |
For businesses that can qualify for the lowest rates: SmartBiz
If you have decent credit and your primary concern is getting a loan with a low interest rate, SmartBiz is your best bet. The company uses proprietary technology to originate U.S. Small Business Administration-backed loans up to $350,000, and it provides loans much faster than SBA loans originated through traditional banks.
Although SmartBiz technically accepts borrowers with bad credit, the lender is looking for overall high-quality borrowers that meet the SBA’s underwriting requirements. To be eligible for a SmartBiz loan, you must have been in business for at least two years, filed two years of tax returns, and have a credit score of at least 600, says Judy Balint, chief marketing officer at SmartBiz. To apply, you’ll need to submit personal and business financials, tax returns and credit reports.
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Get StartedApply on SmartBiz’s secure site |
The bottom line
Having bad credit doesn’t mean you can’t get a small-business loan. If you’re willing to pay higher rates, you can turn to small-business lenders. Still, it’s important to learn about the factors that affect your credit score and work to boost it, says Kenneth Salas, co-founder of Camino Financial, a company that matches small-business borrowers with various online lending platforms. FICO scores still carry weight on lenders’ algorithms, he says. And if your lender reports to a business credit bureau, your small-business loan might even give your credit score the bump it needs.
Find and compare the best small-business loans
To compare your options, NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Compare business loans
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel
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