Business Loans With Bad Credit – Get Creative

Consumers with past credit problems can often get personal credit cards but can you apply and get business loans as well?

The answer is a qualified “yes”. There are lenders who provide bad credit business loans which can help you finance a new business startup, provide capital for expansion of your current business or yield funds for day to day operations.

The loans are available from many sources including banks and commercial lending institutions, private lenders and cash advance companies. In addition, there are government agencies that may grant loans for certain businesses or certain segments of the population.

You Are Labeled as High Risk

When you have bad credit you are in a high risk category to the lender. For that reason, these loans require a substantial amount of documentation and you will pay interest rates that are higher than the norm. All lenders set interest rates and terms for loans based on credit worthiness.

A business owner with a thriving store and great credit rating will have lenders competing to loan him money. That same business owner will find his options limited somewhat if his payment record reflects problems meeting his obligations.

If you have bad credit you may be in the position of searching for any loan source that will lend to you.

You will be required to provide detailed documentation and may find more documents requested several time during the loan application process. This is also true if you have not established business credit in the past or have a limited amount of credit.

The same documentation and higher interest payments will be encountered for those with less-than-perfect credit. Obtaining loans for your business with a damaged credit file can be difficult (but it can be done).

Merchant Loans

Merchant loans are fairly new on the lending scene and can be a solution for a cash strapped business owner on the verge of closing his doors due to lack of operating capital.

Merchant lenders don’t care about the credit rating of your business. Unlike traditional banks these lenders recognize the challenges small business owners can face.

They understand the ups and downs of building a business and how one or two small mistakes or a glitch in the economy can cause serious problems for small business owners.

If you have a steady income there is an excellent chance you can obtain a business loan with bad credit from a merchant lender. They will require some business history of credit card transactions so may not be viable for those with a startup business.

The merchant lender adjusts your credit card terminal to be used on their credit network. They provide the money you need and you are free to use those funds as you need to.

You will know the exact terms of the loan and what it will cost for you to become debt free.

Each time you run a credit transaction for your business a small portion of the sale goes to the merchant loan company as payback for the loan.

There is no set repayment schedule which adds flexibility to bad credit loans obtained through a merchant lender. You will make payments only when you are selling to customers.

You receive the loan funds up front and that alone can make the different between growing and closing your small business.

This newer option is perhaps the best choice if you need a small business loan with bad credit. The interest rates will be high but the benefits of immediately improving your ability to pay business expenses and the ability to pay back the loan slowly as your business and sales improve is a big plus for someone who needs money now.

Low Doc Business Loans for Bad Credit

Once quite commonly found, low doc business loans have become scarce in the current economic conditions. For a low documentation loan almost anyone will qualify as the only requirement is an application and a declaration of income.

The lender considers the validity of your business and the worth of it. Defaulting on a loan will result in loss of the business to the lender so value of property and equipment is crucial.

The qualifications for Low Doc business loans for bad credit vary but those with the worse credit should expect to pay higher interest rates. Some lenders make these loans only to certain categories of businesses.


There are two types of bad credit in a lender’s view. The first is a business owner has not developed sufficient credit for his business. This is very high risk as there is no credit history – either good or bad – to help lenders make a decision.

The second instance referred to as “bad credit” is a history of late payments or defaults that have placed negative marks on the business credit file.

If this is the problem and the bad credit is significant, obtaining a loc doc loan is more difficult. It is not impossible, however, and those who can provide a co-signer with good credit will increase their chances of business funding.

Business loans are available (even if your credit file is damaged) thought there may be many hoops you must jump through. If you can obtain a merchant business loan, that will be the easiest loan to repay and the safest loan to obtain.

P.S make sure to check out our guide on how to get a credit card with bad credit as well!