How to get a business loan with bad credit

If a low credit score is making it harder to secure finance, this guide explains the types of business loans available and what you should consider before applying.

Key takeaways

• Business loans for bad credit are loans available to businesses with a poor or limited credit history, although fewer lenders may be willing to offer finance.

• Lenders will consider more than your credit score, including your business’s finances, turnover, affordability and trading history. They may also check your personal credit history and ask for a personal guarantee.

• Bad credit business loans generally come with stricter terms, such as higher interest rates, lower borrowing limits and shorter repayment periods, so compare your options carefully before applying.

What is a bad credit business loan?

A bad credit business loan is a type of business finance for businesses with a poor, limited or damaged credit history. Some lenders specialise in providing finance to businesses that may struggle to qualify for traditional business loans.

However, having bad credit doesn’t necessarily mean you’ll be approved, and if you are accepted, you may face less favourable terms than a business with a stronger credit profile.

What do lenders look at?

Lenders consider several factors when assessing a business loan application, rather than relying on your credit score alone. These can include your business’s turnover, cash flow, trading history, existing debts and ability to afford the repayments.

Depending on the lender and type of finance, they may also check your business or personal credit history. Some lenders may also ask for a personal guarantee, which means you could become personally responsible for repaying the debt if the business can’t do so.

💡 Editor insight: How lenders really assess SMEs

What is considered a bad credit score?

There’s no single credit score that counts as “bad” across all lenders. Credit reference agencies use different scoring systems and ranges, and each lender has its own criteria for assessing applications.

You can have both a business credit score and a personal credit score, and, depending on the lender and type of finance, either or both may be considered when you apply for a business loan.

A poor credit score can be caused by factors such as:

• Missed or late payments: Repeatedly failing to make payments on time can negatively affect your credit history.

• Defaults or County Court Judgments (CCJs): Serious missed payments or unpaid debts can leave negative marks on your credit report.

• High levels of existing debt: Having significant outstanding borrowing may make you appear higher risk to lenders.

• Too many credit applications: Making several applications in a short period can impact your credit profile. Lenders may look at this as an indication of the business being in financial difficulty.

• A limited credit history: Businesses or individuals with little borrowing history may have fewer records for lenders to assess.

• Financial difficulties: Cash flow issues, unpaid debts or insolvency can affect your business credit profile.

The lower your credit score, the harder it tends to be to qualify for some types of business finance. However, your credit score is only one factor lenders may consider, alongside your business’s financial performance, trading history and ability to afford repayments.

Read more: How to improve your business credit score

Am I eligible for a business loan with bad credit?

Having bad credit doesn’t automatically rule you out of getting a business loan. Some lenders specialise in working with businesses that have poor or limited credit histories, although eligibility criteria can be stricter and vary between lenders.

What do lenders look for?

When assessing an application, lenders may look at your wider financial circumstances as well as your credit history. Factors can include:

• Cash flow and revenue: Lenders may review your business bank statements, turnover and cash flow to assess whether your business can afford the repayments.

• Time in business: Some lenders require businesses to have been trading for a minimum period before they will consider an application. Requirements vary, and businesses with a longer trading history may have more options.

• Your credit history: Lenders may consider the reason for your poor credit score, how recent any missed payments or defaults are, and whether your financial position has since improved.

• Affordability: You’ll generally need to show that your business can afford the loan repayments alongside its existing financial commitments.

• Security or a personal guarantee: Depending on the loan and lender, you may need to provide security or agree to a personal guarantee. This could leave you personally responsible for repaying the debt if your business cannot.

What types of bad credit business loans are there?

The main types are secured, unsecured and guarantor loans. They differ in how the borrowing is supported and what happens if you’re unable to repay.

Secured business loans

A secured business loan is backed by an asset, such as a property, vehicle or piece of equipment. If you fail to repay the loan, the lender may be able to take possession of the asset to recover the debt.

Providing security can sometimes make it easier to access finance or borrow larger amounts, but you risk losing the asset if you cannot keep up with repayments.

For more detail, see our guide to how secured business loans work.

Unsecured business loans

An unsecured business loan doesn’t require you to provide a specific asset as security. Instead, the lender will assess factors such as your credit history, business finances and ability to repay.

However, bad credit can make unsecured borrowing harder to access. You can learn more about unsecured business loans in our guide.

Guarantor business loans

A guarantor business loan involves another person agreeing to repay the loan if your business cannot. This provides the lender with additional security and may help some businesses access finance when their credit history is weaker.

However, the guarantor takes on financial responsibility for the debt if the business fails to repay, so they should understand the risks before agreeing.

Do bad credit business loans require a personal guarantee?

Some lenders may require a personal guarantee, particularly where a business has a weaker credit profile. This means you agree to personally repay the borrowing if your business cannot, potentially putting your personal finances and assets at risk. 

Before agreeing to one, make sure you understand exactly what you could be liable for and consider seeking independent professional advice if you're unsure. Find out more in our guide to everything you need to know about personal guarantees for business loans.

Compare bad credit business loans

If you have bad credit, finding suitable business finance can be challenging. The money.co.uk business loan journey helps businesses explore their options by asking a few questions about their business, funding needs and how they plan to use the money.

We match businesses with relevant finance options from a wide range of lenders, helping you focus on products that may fit your circumstances rather than searching through unsuitable options.

You can check your likely eligibility for free with a soft search, which won’t impact your credit score. If you decide to proceed with a full application, the lender may carry out a credit check.

How to get a business loan with bad credit: 5 steps

There are steps you can take to improve your chances of being accepted for a loan, even if your credit score isn’t especially strong right now. 

1. Check your credit reports

Before applying, check your business and personal credit reports for errors or outdated information. If anything’s incorrect, contact the relevant credit reference agency to have it investigated and corrected. Knowing what's on your credit reports can also help you understand how lenders may view your application.

2. Make sure the loan is affordable

Consider how much you need to borrow and whether your business can actually afford the repayments alongside existing commitments. Use a loan repayment calculator to estimate the cost and avoid applying to borrow more than your business can reasonably repay.

3. Prepare your financial information

Having evidence of your business's financial position can help a lender assess your application. Depending on the lender, you may need to provide documents such as bank statements, accounts, cash flow information, forecasts or details of existing debts.

4. Look for lenders that accept bad credit applications

Not all lenders have the same eligibility criteria. Some specialise in lending to businesses with poor or limited credit histories, so focus your search on lenders whose criteria match your circumstances. Compare the interest rate, fees, borrowing limit and repayment terms rather than choosing an offer based on acceptance alone.

5. Avoid making multiple applications

Making several full credit applications in a short period can leave multiple searches on your credit report and may make it harder to find suitable finance. Where possible, check a lender's eligibility criteria first and use soft search eligibility checks if available, before submitting a full application.

What to consider before applying for a business loan

Before taking out a business loan, make sure you understand the total cost of borrowing and are confident your business can afford the repayments. Bad credit business loans can come with higher interest rates and fees, so compare the total amount repayable rather than focusing only on the monthly payment.

Missing repayments could lead to additional fees, damage your credit profile and, depending on the loan, put your business assets or personal finances at risk.

Pros and cons of bad credit business loans

Pros

• Access to finance: Some specialist lenders offer funding to businesses with poor or limited credit histories.

• Fund business needs: A loan could help cover working capital, equipment or other business costs.

• Potential to improve your credit profile: Making repayments on time may help strengthen your credit history over time.

• More finance options: Depending on your circumstances, you may be able to choose between secured, unsecured and guarantor loans.

Cons

• Higher interest rates: You may pay more to borrow than a business with a stronger credit profile.

• Lower borrowing limits: You may not be able to borrow as much as you could with a stronger credit history.

• Stricter terms: You may face shorter repayment periods, additional fees or other conditions.

• Risk to personal finances: A personal guarantee or secured loan could put your personal assets at risk if your business cannot repay.

Alternative funding options for businesses with bad credit

If a traditional business loan isn't suitable or you don't meet a lender's criteria, there are other options you could consider.

• Invoice finance: This lets you access money tied up in unpaid customer invoices, rather than waiting for customers to pay. It can provide a cash-flow boost for businesses that regularly invoice customers

• Asset finance: This can help you buy or lease equipment, vehicles or other business assets without paying the full cost upfront. The asset may be used as security for the finance.

• Merchant cash advance: This provides an upfront cash advance in exchange for a percentage of your future card or other eligible sales. Repayments are typically linked to your sales, which can make this an option for businesses with regular card revenue.

• Business credit card: This can provide a flexible way to borrow for smaller business expenses. Eligibility and credit limits will depend on the provider and your circumstances.

It may also be worth looking into government grants, which provide funding that generally doesn't need to be repaid if your business meets the relevant eligibility criteria.

Seek advice if you need it

If you're concerned about your credit history or struggling with existing debt, consider getting independent advice before applying for a business loan. This can help you understand your options and avoid taking on borrowing you may not be able to afford.

Free services such as StepChange and National Debtline can provide guidance if you’re struggling with debt. You could also speak to a qualified business adviser or finance broker if you need help comparing your business finance options.