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Key takeaways
You can still get a startup business loan with bad credit or no collateral — though your options may be limited to online lenders, CDFIs or microlenders that often charge higher rates.
Avoid lenders that guarantee approval or lack transparency, as they may be predatory or charge excessive fees.
Strengthening your credit, offering collateral (if possible) or adding a cosigner can improve your chances of approval and secure better loan terms.
Getting a startup business loan when you have bad credit or no collateral isn’t easy, but it’s possible — especially through online or nonbank lenders. Because these small-business loans come with higher rates, you should take the time to understand the terms and make sure you can afford the debt before borrowing.
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
Understanding bad credit and no collateral
What does bad credit mean?
According to the most common scoring models, such as FICO and VantageScore, poor or bad credit scores can fall between 300 and 629. Scores between 630 and 689 are considered fair. Factors that influence your credit score include:
Length of credit history.
Mix of account types (loans, credit cards, etc.)
Credit score requirements will vary based on your lender and the type of loan you’re looking for. Generally, bad-credit business loans are available to borrowers with credit scores below 630.
What does no collateral mean?
Collateral is an asset, such as real estate, equipment or inventory, that you pledge to secure a loan. If a loan doesn’t have collateral, it’s considered unsecured — in other words, a no-collateral loan. Most unsecured loans, however, still require a personal guarantee or a general lien on your business assets.
These agreements help the lender ensure repayment, even without specific collateral. A personal guarantee makes you personally responsible for the debt and a lien gives the lender the right to claim your business assets in the event of default.
“Predatory lenders are an unfortunate reality —and they tend to target borrowers who are having trouble qualifying for financing. Be cautious of lenders that guarantee approval, offer ‘no credit check business loans,’ charge upfront fees or aren’t transparent about their rates and terms.
At best, those may be expensive products. At worst, they could identify predatory lenders that can hurt your new company instead of helping it.”
Where to get startup business loans for bad credit or no collateral
Banks and other traditional lenders typically turn down startups that have bad credit or no collateral, since both factors make the business riskier to lend to. Alternative lenders, however, are often more flexible. Here are options to consider:
Online lenders
Best for: Startups that are already generating revenue; quick access to funds.
Online lenders may offer startup business loans to newer companies or owners who have lower credit scores. In exchange for this flexibility, they usually charge higher annual percentage rates (APRs) and may require a personal guarantee or general lien on your business assets.
To qualify, your startup will need:
At least three months in business.
Steady income (for example, Fundbox requires $2,500 in monthly revenue).
A minimum credit score of 500+.
Online lenders often offer short-term loans, business lines of credit, equipment financing and invoice factoring — all options that can work even if you don’t have collateral.
CDFIs
Best for: Startups in underserved communities; borrowers who can’t qualify for traditional loans.
Community development financial institutions, or CDFIs, receive funding to help support small businesses that lack access to conventional financing. Many CDFIs offer loans to startups without requiring traditional collateral.
If you can qualify, these lenders may offer more affordable rates and personalized guidance compared with online lenders. Approvals can take time, however, so you’ll need to be able to wait for funding.
Microlenders
Best for: Startups that need smaller loan amounts; borrowers with a limited credit history.
Microlenders specialize in helping small, early-stage businesses — especially those with low credit and limited assets. If you qualify, a microloan can be a good choice for bad-credit startups with small funding gaps. Loans are usually $50,000 or less.
Some microlenders also issue loans through the SBA microloan program. This program strives to help women, low-income, veteran and minority entrepreneurs — as well as startups and microbusinesses. SBA microloans typically offer competitive interest rates and terms up to seven years.
Merchant cash advance companies
Best for: Startups with consistent debit and credit card sales that need fast funding.
Merchant cash advance companies offer an upfront sum of capital that you repay with a percentage of your debit and credit card sales, otherwise known as a merchant cash advance. You may also be able to get an MCA directly from your payment processor, like PayPal or Shopify.
MCAs are generally easier to qualify for than typical business loans. Many merchant cash advance companies have low credit score requirements, don’t require collateral and prioritize your sales history when underwriting your application. As a result, MCAs may be a convenient option for startup businesses with consistent revenue, but lower credit scores.
Keep in mind, however, that these products can significantly cut into your cash flow. They also have high costs (APRs can reach up to 350% in some cases) — so you’ll want to consider all other options before an MCA.
Best startup business loans for bad credit and no collateral
Expansion Capital Group – Merchant cash advance
$300,000500
Giggle Finance – Merchant cash advance
$10,000300
AltLINE – Invoice factoring
$5,000,000300
Fora Financial – Online term loan
$1,500,000570
Accion Opportunity Fund Small Business Working Capital Loan
$350,000620
Fundbox – Line of credit
$250,000600
National Funding – Equipment financing
$150,000600
OnDeck – Online term loan
$250,000625
Kiva U.S. – Microloan
$15,000300
How to get a startup business loan with bad credit
Lenders tend to be cautious about working with startups or borrowers who have bad credit. Before applying for a loan, therefore, you’ll want to strengthen your business profile to increase your chances of approval. You can:
Build your credit
Improving your credit — both business and personal — can expand your loan options and help you access better rates and terms.
To build your personal credit, you can fix mistakes on your credit report and pay down debt. To build your business credit, you can establish trade credit with your suppliers and upload financial statements to the commercial credit bureaus.
Some lenders may also offer business loans or lines of credit (secured by cash deposits) that you can use to establish positive payment histories.
Add a cosigner
Having a cosigner on your business loan — someone who agrees to take over payments on the loan if you default — can make your application more favorable to a lender. Valuable cosigners usually have strong credit and personal finances.
Include a well-written business plan
A thorough business plan can help convince a lender that you’re worth investing in. Your business plan should outline your financial goals and how you plan to achieve them. It should also include how much funding you need and show your ability to repay it.
To help you write a business plan, you can take advantage of the free services offered by the SBA and resources like your local Small Business Development Center and SCORE.
Alternative financing options for startups with bad credit
If you’re not sure that you can qualify for a traditional loan — or just want to explore all of your options — consider these alternatives:
Business credit cards. If your credit is at the high end of what’s considered a bad score (below 630), you may be able to qualify for a business credit card. You can apply for a business credit card as a true startup — before you’ve generated any revenue at all. Card issuers may give more weight to your personal finances in those cases, however.
Small-business grants. Grants provide financing that you don’t have to repay, although applications may be competitive and time-consuming. Nevertheless, business grants can be a good option if you’re a startup with consistent early revenue, but are facing credit challenges. To qualify, you’ll want to show the grant issuer that your business idea has staying power.
Friends and family loans. Borrowing money from family and friends may be a low-cost funding option if you can’t get a traditional loan. The terms of the loan can be flexible because you have the ability to work them out with your family member or friend. Make sure, however, you have a written agreement with loan details to avoid misunderstandings down the road. Friends or family lending you money will also want to consider any IRS guidelines that may apply.
Crowdfunding. With crowdfunding, donors receive a product or service related to your business in exchange for their contribution. This is a particularly good option if you have a strong internet presence or following. It can also be a worthwhile choice if you’re still preparing to launch your business idea.
Frequently asked questions
Can you get a guaranteed startup business loan with bad credit?
Can you get a startup business loan with a 500 credit score?
Do you need collateral to get a startup business loan with bad credit?
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