Jun 18, 2024
Travis Palmer

Startup Business Loans with Bad Credit: How to Secure Financing

Securing a startup business loan with bad credit can be challenging, but it's not impossible. This guide explores alternative financing options, tips for improving your credit, and strategies to get your business funded even if your credit score is less than perfect.

1. Understanding the Challenges of Bad Credit

What is Bad Credit?

  • Credit Score Range: Generally, a credit score below 600 is considered bad credit. This can be due to late payments, high debt levels, bankruptcies, or other negative financial events.
  • Impact on Loans: Bad credit makes it more difficult to secure traditional loans, as lenders view you as a higher risk.

Why Lenders Care About Credit Scores

  • Risk Assessment: Credit scores help lenders assess the risk of lending money. Lower scores indicate higher risk, which can lead to higher interest rates or loan denial.

2. Alternative Financing Options


  • Overview: Microloans are small loans typically offered by non-profit organizations and community lenders.
  • Loan Amounts: Up to $50,000.
  • Interest Rates: Generally higher than traditional loans but more accessible for those with bad credit.
  • Examples: Accion, Kiva, Grameen America.

Online Lenders

  • Overview: Online lenders offer a variety of loan products with more flexible requirements.
  • Loan Amounts: Varies, typically up to $500,000.
  • Interest Rates: Higher than traditional banks, ranging from 10% to 50%.
  • Examples: OnDeck, Fundbox, BlueVine.

Business Credit Cards

  • Overview: Business credit cards can provide a revolving line of credit for startup expenses.
  • Interest Rates: Varies, often 13% to 25%.
  • Pros: Quick access to funds, potential rewards and cash back.
  • Cons: High-interest rates if not paid off monthly.

Equipment Financing

  • Overview: Loans specifically for purchasing business equipment, with the equipment serving as collateral.
  • Loan Amounts: Varies based on the equipment's value.
  • Interest Rates: 8% to 30%.
  • Pros: Easier approval due to collateral.

Invoice Financing

  • Overview: Advances based on your outstanding invoices, providing immediate cash flow.
  • Loan Amounts: Varies, typically up to 90% of the invoice value.
  • Interest Rates: Higher rates, often 10% to 60% APR.
  • Pros: Quick access to funds.

Merchant Cash Advances

  • Overview: Advances based on future credit card sales, repaid through a percentage of daily sales.
  • Loan Amounts: Varies, up to $250,000.
  • Interest Rates: Can be very high, often 20% to 250% APR.
  • Pros: Quick and flexible funding.

3. Improving Your Credit Score

Check Your Credit Report

  • Annual Credit Report: Obtain a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) at
  • Dispute Errors: Correct any errors that may be negatively affecting your score.

Pay Down Debt

  • Debt Reduction: Focus on paying down high-interest debt to improve your credit utilization ratio.
  • Consolidation: Consider consolidating multiple debts into a single loan with a lower interest rate.

Make Timely Payments

  • Automatic Payments: Set up automatic payments to ensure you never miss a due date.
  • Payment History: Consistently making on-time payments is crucial for improving your credit score.

Build Positive Credit History

  • Secured Credit Card: Use a secured credit card to build positive credit history.
  • Credit Builder Loans: Consider small loans designed to help build credit, offered by some banks and credit unions.

4. Preparing for Loan Applications

Create a Solid Business Plan

  • Detailed Plan: Outline your business model, market analysis, financial projections, and growth strategy.
  • Demonstrate Potential: Show lenders that your business has a viable path to success and profitability.

Gather Financial Documents

  • Personal and Business Financials: Prepare personal and business tax returns, bank statements, and financial statements.
  • Proof of Income: Provide documentation of your income and revenue streams.

Highlight Collateral

  • Asset Valuation: Highlight any assets that can be used as collateral to secure the loan, such as equipment, inventory, or real estate.

Seek Professional Advice

  • Consult Experts: Work with a business advisor, financial planner, or accountant to prepare your loan application and improve your chances of approval.

5. Finding the Right Lender

Research Lenders

  • Compare Options: Research and compare different lenders to find one that suits your needs and offers reasonable terms.
  • Read Reviews: Look for reviews and testimonials from other borrowers to gauge the lender’s reputation.

Build Relationships

  • Local Banks and Credit Unions: Establish relationships with local financial institutions, as they may be more willing to work with small businesses in the community.
  • Networking: Join business networks and associations to connect with potential lenders and investors.


Securing a startup business loan with bad credit may be challenging, but it's possible with the right approach. By exploring alternative financing options, improving your credit score, preparing thoroughly, and finding the right lender, you can obtain the funding needed to start and grow your business.

Ready to explore your funding options and secure the right financial solutions for your business? Get offers today! Fill out an application with Approvd and discover the best funding solutions for your business. For more business, credit, and financial insights, visit our Approvd blog page.

About the Author

With over 20 years of experience in the business loan marketplace at Approvd, our expert has helped countless small business owners navigate the complexities of securing the right funding. Passionate about empowering entrepreneurs, our expert combines industry knowledge with a deep understanding of the challenges faced by small businesses today.

Man and woman small business owners

Compare competing offers and get funding for your business today.