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Best Startup Business Loans (Even If You Have Bad Credit)

Last updated 03/15/2024 by

Jessica Walrack
Are you a budding entrepreneur starting a new business with less-than-perfect credit? You may have some trouble getting approved for startup business loans but that doesn’t mean all hope is lost. There are actually many routes you can take where your personal credit score won’t be an obstacle. In this article, learn:
  • What business startup loans are
  • The best business loans for startups with bad credit
  • 11 creative ways you can find startup business loans
Ronald Benitez, a private institutional investor who specializes in helping startups get capital, says, “The key for any startup to receive funding really lies in their vision and value proposition. I have worked with several business owners who have had poor credit but still received funding.”
If you have time before you need funds, it will be best to focus on repairing your credit so you can increase your score and qualify for better terms. However, if you need cash now, here’s what you should know!

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Startup business loans with bad credit

Finding a business loan when you’re a startup can be a challenge. Many entrepreneurs use personal loans as seed money. Here are some of our top picks.

What is a business startup loan?

Startup business loans involve an amount of money that a business owner borrows to fund its operations when getting started. Often, a business needs a lump sum initial investment to cover startup costs such as:
  • Equipment
  • Incorporation fee
  • Office space
  • Inventory
  • Marketing
  • Create a website
  • And more
Once a startup business is up and running, the revenues generated are used to repay the startup business loan. If you have poor credit, it may be harder to earn the trust of a traditional lender but there are many alternative routes you can take.

How to get a startup business loan with bad credit

You have a great new business idea. Now you are wondering, “How do I finance a startup business?” While the application process can be a bit more difficult for entrepreneurs with poor credit, getting startup business loans is still possible. Here are 11 of the best ways small business owners like you find their startup funding.

1. Personal loan

Most lenders that offer business loans require applicants to have a year or two under their belts before they can qualify. However, you don’t necessarily need a business loan to fund your business. Lenders offer personal loans that can be used for anything you choose, including your new startup. But how can you get a personal loan with poor credit?
You need to find the right lender. Some are more lenient with their minimum credit score requirements than others, such as lenders that specialize in financing borrowers with subprime credit.

2. Equipment financing

If you need a loan to purchase equipment or machinery, you may want to consider equipment financing. Instead of a lender securing a loan with your personal or business credit, they can use the equipment for collateral. This helps to reduce their risk which may help you not only get approved but get a more competitive interest rate. Many banks, credit unions, and lending institutions offer business financing for equipment including Balboa Capital and OnDeck.

3. Invoice financing

If your business issues invoices to customers and has to wait for your payments to come in, invoice financing may be helpful. This loan type enables you to borrow against your outstanding invoices to improve cash flow. Often, you can borrow up to 85% of the invoice amount.
Once your customer pays, you repay the amount you borrowed plus any fees. Your invoices act as the collateral in this loan scenario which reduces the reliance on your credit history. BlueVine is a business lender that offers invoice financing as one of its loan options.

4. Merchant cash advance

Merchant cash advances are another funding option. They give you money upfront under the condition that you repay it from your future sales. For example, if you use PayPal for at least 90 days and make at least their minimum requirement in revenue ($20,000 per year), you can get a working capital loan up to 30% of your annual sales. Square also offers customized loan offers based on your card sales through Square. While the interest and/or fees can be relatively high, these lenders often don’t require a check of your personal credit history so can be a great financing option if your credit isn’t great.

5. Credit cards

Funding a small business startup with credit cards is more common than you might think. If you currently have a personal or business credit card open with an available credit line, you may want to consider using it to fund your business needs. Credit cards often have affordable minimum monthly payment requirements. However, the interest will add up over time so it’s best to plan to repay them as soon as you can.
If you don’t have any credit cards yet, you can apply for a personal or business credit card, as they will typically have more flexible credit requirements than business loans. If you can’t get approved, a path to credit access can begin with a secured card. For example, card issuer Capital One offers the Platinum Secured card which enables you to earn a higher credit line after five on-time monthly payments. If you manage the card well, it can help you to access credit and improve your credit score so more credit becomes available to you.

6. Borrow from yourself

Next, you may have funding sources to tap into that you haven’t thought about, including:
  • Home equity: If you have equity in your home, you may also want to consider taking out a home equity line of credit (HELOC). Your home acts as the collateral which enables competitive interest and flexible eligibility requirements. The downside of this financing option is that the loan payment will be in addition to your regular mortgage payment. If you miss a payment, you can put your home at risk of foreclosure so ensure you can afford the payments.
  • Retirement: Borrowing against your retirement or 401(k) account may be able to offer you the funds you need, however, it can have some negative consequences. For instance, you will make loan repayments with money that has already been taxed. You will also pay taxes on your retirement withdrawals, so you’ll pay taxes twice on the money you borrow.
  • Insurance policy: If you have a life insurance policy with cash value, you may be able to take out a loan against it as well. But if your life comes to an end before the loan is repaid, the loan amount owed plus interest will be deducted from the death benefit.

7. SBA loans

Can I get an SBA loan to start a business?
SBA loans can be a great funding resource for an up-and-coming small business. The Microloan program was created and financed by the Small Business Administration (SBA) to help businesses with startup and expansion costs. Loan amounts go up to $50,000 but the average is about $13,000, says the SBA. Funds for microloans are given to nonprofit intermediary lenders that are community-based and offer assistance in addition to the loans.
Accion, for example, is a nationwide nonprofit lender of microloans, one that is open to working with disadvantaged new businesses as well as struggling communities. Of course, during the application process, they will want to see that you have the ability to pay the loan back or may ask for a cosigner but perfect credit scores are not necessary. The application is looked at as a whole, and a low personal credit score can be offset by stronger spots in the application.
The funding from a microloan can be used for working capital, machinery, supplies, inventory, equipment, furniture, or fixtures but not real estate or existing debts. You can find lenders in your area to apply by contacting the SBA District Office closest to you or by checking this report, which has a list of lenders.
If you need a larger loan, you can explore the various other SBA loan options including Standard 7(a) loans which offer loans up to $5 million, 7(a) small loans for up to $350,000, and specialty loans for businesses working in exports and international trade.

8. Venture capital

Another route for startup businesses is to get a loan through equity financing. This option involves an investor giving you cash in exchange for equity in your company. The investor also typically will want to play an active role in your company’s decisions. According to the SBA, this kind of funding is different from traditional loans and financing because investors typically do the following:
  • Focus on young companies with high-growth potential
  • Take higher risks to potentially earn them higher returns
  • Have a longer investment horizon
  • Actively monitor businesses they invest in
“Over the past few years, wealthy individuals have looked for new ways to invest their money and at the same time have their money used in a meaningful way,” Benitez says. “Startups offer the perfect solution. They allow investors to be a part of a team and incentives for success are very lucrative.”
The application process requires you to have a business plan and the materials prepared to allow investors to perform due diligence on your business. If an investor decides to give you financing, you will get the money in exchange for a stake in your company’s equity and/or debt. Then, the investor will take an active role in your business. At some point, they may exit your business, typically after they have made their desired return on investment.
This article has some great tips on how to find the right investor for your startup.

9. Family and friends

It may seem uncomfortable or awkward, but getting small business startup loans from family and friends is common. Four out of five founders get business financing from a combination of their personal resources and friends and family, according to the Global Entrepreneurship Monitor’s report.
People who know you won’t use a credit-based algorithm and information on a report to decide whether they should lend to you. Instead, they will base the decision on their knowledge of you and your business plan. If you have shown yourself to be responsible and trustworthy, they may decide to offer you financing, helping you get started. If they can’t, they may connect you with someone who can.
While borrowing from a friend or family member can result in a more reasonable cost, your relationship with the person is securing the loan, which can present a high level of risk. However, if things go sour, you may damage the relationship and have to bear unpleasant social repercussions. To figure out if this is the best route for you, make sure to consider all of the potential benefits and consequences of this option.

10. Crowdfunding

Next up is crowdfunding. There are many crowdfunding platforms in which you can create a campaign for your small business startup. Once your campaign launches, you attempt to raise the money you need from the “crowd.” Some platforms like Kickstarter, Indiegogo and FundRazr target the general public. Campaigns offer rewards in exchange for contributions. Others like CircleUp and Crowdfunder offer equity-based crowdfunding, which means accredited investors contribute to your campaign in exchange for equity in your company.
Check out the review for Fundrazr in the profile below for more information.
Shop and compare crowdfunding platforms to see whether it’s the route you want to take.

11. Business grants

Business grants are not loans but they are better because they can provide you with cash flow and you don’t have to pay them back. The catch is, they are funded by tax dollars so have strict requirements on how they can be used. Make sure to read the fine print carefully. The U.S. SBA does not provide any business grants to small businesses but you can check with state and local programs, nonprofits, and other local groups.
To find the best startup business loan for you, think over these options. Review the pros and cons and rank them from best to worst for your situation. Then, start getting quotes.

Frequently asked questions about small business startup loans

How do I qualify for a business startup loan?

The requirements to get business financing depends on the type of loan you get and the company you get it from. Some will look for business credit, some for personal credit, while others will consider factors such as your business plan, time in business, or transaction history. The best bet for small businesses is to analyze your strengths and weaknesses as an applicant. Then, look at the available options for business and personal loans and choose the best potential fits for your current situation. Keep in mind, there are several key loan features to compare including term, interest rate, fees, and customer service.

What is the easiest business loan to get?

The easiest startup business loan to get depends on your situation. If you have great credit, it may be easiest to get a business or personal loan from an online lender. You can apply and, upon approval, can have your funds in your bank account as soon as the same day. If you don’t have credit, your best route to business loans may be through merchant cash advances, friends and family, credit cards, or the SBA. Fundbox and Lendio are two lenders that are known for helping business owners with poor credit scores but you must have time in business. For those with credit in the middle, it’s a good idea to see what offers you can get from online lenders as well as exploring the other options.

Which bank gives the best business loans?

The best business loans are those that offer the loan amount you need at competitive rates with a term that fits your budget, along with good customer service and quick delivery of funds. Review our list of business lenders below side-by-side. However, eligibility requirements are also important. A bank’s business loan is only best for you if you can get approved for it.
When you get to the part of browsing lenders, narrow down your search to find those that serve your application profile. This includes the loan amount you need, your personal credit and business credit, your revenue, your time in business, etc. Keep in mind, you can learn a lot from the reviews of past customers.

Is it smart to start a business on a loan?

Starting a business with a loan can be smart. Many company owners need funds to get their revenue engine rolling. As a general rule, when considering any loan, it’s best if the proceeds of the loan are an investment. The more profitable that investment, the better. A business is meant to generate revenue so using a startup loan can be smart but it all depends on the likelihood of the business to succeed. It’s best for business owners to minimize startup costs where they can and to validate as they go to reduce risk.

Are credit cards or loans better for funding a startup?

Both credit cards and loans (personal and business) can each be helpful resources when trying to fund businesses. When weighing your options, it’s best to consider the overall cost and terms of each option. Look at the fees, the interest rates, loan amount or credit line, and the repayment terms.
Personal loans often have more competitive interest rates than credit cards but that’s not always the case. Some credit cards offer an interest-free introductory period. In this case, a credit card may turn out as the better option if you can pay off the balance before the promotional period ends. Ease of approval is also another factor. You may find it’s easier to get credit cards than a loan. Further, business credit cards may be more difficult to get than personal ones or vice versa.
We recommend considering both personal and business credit cards and loans before making a final decision.
Browse the best credit cards for startups.

What credit score is required to get small business loans?

According to the credit bureau, Experian, a fair credit score ranges from 580 to 669 while a good credit score falls between 670 and 739. Poor scores fall under 580. Getting approved for a loan or credit line with a poor or fair credit score might be more difficult, but it’s not impossible.
Lenders and card issuers create their own rules pertaining to the minimum personal credit scores they require for approval. And some are more flexible than others. For example, Lendio advertises it will provide loans to business owners with a 500 credit score if they have $8,000 in monthly revenue. However, its standard recommendation is a minimum score of 650 with 12 months in business. Fundbox, another lender, says it requires a minimum score of 550 and $50,000 in annual revenue to qualify.
Supermoney can help you find lenders like Lendio and Fundbox that will offer you financing through our business loan engine.

Which card issuers offer the best small business credit cards?

If you are looking for a credit card tailored to small business owners, two card issuers really stand out in the market; Capital One and Chase. Both have an impressive line up of small business credit cards with annual fees ranging from $0 up to $95 and varying rewards and benefits. The right card for you will depend on your business’s spending habits.

Do I need business credit to get a startup business loan?

When it comes to getting startup business loans, you may be concerned that you don’t have any business credit built yet. Fortunately, many lenders will base their decision on your personal credit score instead. So business credit is not required to get funding. However, if you do go the route of trying to get a business loan rather than a personal one, you may find lenders looking for a minimum number of years in business as well as a minimum annual revenue. For this reason, brand new businesses will have better luck with financing backed by personal assets or credit.

What are Accion small business and startup loans?

You may have heard of Accion and wondered what it is and how it works. In short, it’s the largest nonprofit lending network In the U.S. Its aim? To help business owners with flexible and fair loans, networking, and access to resources. It can be a helpful resource for businesses that keep hitting dead ends on the search for startup and small business loans.

What if I get turned down for a startup business loan?

If you have applied for a loan but received a denial, don’t get discouraged. Look for another route. If your credit is in very poor shape, you may want to reach out to someone with more established credit to see if they will cosign for you. Or, like many new businesses, turn to your personal network. If you keep running into denials, you can take some time to work on improving your credit profile.
Take a look at your credit reports. Ensure there are no mistakes. Take inventory of any outstanding debts and negative marks. And make a plan to improve. Many financial apps today will monitor your credit for you and send you ongoing tips. In time, you can work your way up a bit so you can qualify for your much-needed startup loan.

What is the difference between startup loans and small business loans?

The main difference between a startup loan and one for a small business is that a startup is a very young company just getting started. Startups are often run on a very lean budget while they get going. A small business, on the other hand, is already up-and-running and more established.
It can be easier to get a small business loan because it presents less risk to the lender financing you. Startups haven’t yet proved they will be profitable. However, either way, you still have the 11 financing options above to explore.

Is equity or debt financing better?

Equity financing refers to giving a stake of your company to an investor in exchange for financing. Debt financing means you keep ownership but have to repay the amount borrowed plus interest and fees.
Both have their pros and cons. Equity financing means you won’t have any payments to make immediately. But over time, the investor will get a share of the profits. This can cost you more in the long term. Further, they may want a say in how you run the business.
Debt financing leaves you in complete control but responsible for repayments. Some small businesses use one or the other, while some use both.

Even with poor credit, business loans can be possible

If you are getting discouraged because you have a great small business in the wings but don’t have the funding to get it off the ground, don’t worry.
“Never get discouraged by your personal credit score. Focus on building a great product, app, or idea that people will love and the money will find you,” Benitez says.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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There are many avenues you can explore to get small business loans, even with bad credit. Research the options listed here to find out which will work best for you, and then you can get on with growing your startup to its full potential.

Jessica Walrack

Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar,, Commonbond, Bankrate, NextAdvisor, Guardian, and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.

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