6 Best Startup Business Loans for Bad Credit in April 2024
Updated March 25, 2024 at 4:06 pm
Startups face many challenges when getting their business up and running, including securing funding. Having bad credit (a FICO score of 300 to 579) can make it even tougher for entrepreneurs to get the help they need.
If you have bad credit and are just starting a business, you may be able to get an SBA microloan. These could be your best shot at affordable financing with generous repayment terms.
You also can look to online lenders. Most will require startup businesses to be open and generating revenue for at least a year. But some of the best startup business loans for bad credit include lenders who don’t have time-in-business requirements or may only require six months in business. The downside is you’ll have to deal with high interest rates and may only have short repayment periods of 24 months or less.
Our guide highlights some of the most lenient options for startup business owners with bad credit and shows you how to find the best loan for your needs.
Our Methodology Newsweek Vault’s loan experts evaluated multiple data points to help our readers make sense of their borrowing options across student loans and personal loans. To narrow down the best available offers, we weigh the product pros and cons across five core categories, including:
- Application process
- Eligibility requirements
- Interest rates
- Loan amounts (minimum and maximum)
- Repayment flexibility
Our Picks - Best for affordable loan: SBA Microloans
- Best for fast approval and funding: Fundbox
- Best for smaller loan amounts: Kiva
- Best for short-term loans: Fora Financial
- Best for working capital loan: PayPal
- Best for invoice factoring: eCapital
Best Bad Credit Startup Business Loans of 2024
Best for Affordable Loan
SBA Microloans
Vault Verified
Why we chose it: SBA microloans have more lenient credit requirements than other SBA loans. With generous repayment options of up to six years and competitive interest rates, it can make it a more affordable option for a startup.
Pros
- Lending option targeted for new businesses and startups
- Can use for a variety of working capital needs
- Open to business owners with bad credit scores or no credit history
Cons
- Maximum loan amount of $50,000 may be too small
- Can’t use funds for purchasing real estate or restructuring debt
- Will likely need collateral
- Funding timeline can take months
Additional Information
- Minimum Credit Score: 620, although some lenders may allow lower
- Earliest Funding Time: 30 days
- Minimum Requirements: Must be a startup, new or growing business for-profit or non-profit child care center, must meet SBA small business standards and in an eligible industry
Best for Fast Approval and Funding
Fundbox
Vault Verified
Why we chose it: Fundbox business lines of credit offer next-day funding for up to $150,000. And its time in business requirement of six months is lower than many other lenders.
Pros
- Quick decisions with next-day funding available after approval
- Minimum credit score requirement of 600
- Limited paperwork required for application
Cons
- Short repayment period of either 12 or 24 weeks
- Higher interest rates compared to other options
Additional Information
- Minimum Credit Score: 600
- Fees: 4.99% or 8.99%
- Earliest Funding Time: Next business day after approval
- Minimum Requirements: Minimum six months in business, $100,000 in annual revenue and U.S. based
Best for Smaller Loan Amounts
Kiva
Vault Verified
Why we chose it: Instead of requiring a credit check or a long list of company financials, your business can apply for a microloan through Kiva, which receives funds through crowdfunding. It offers a business an affordable lending solution, especially for a business focused on improving communities.
Pros
- No interest charges
- No additional fees
- No credit check
Cons
- Borrowing amounts limited to $15,000
- Slower approval and funding process
- Must invite contacts from your network or community to lend
Additional Information
- Minimum Credit Score: N/A
- Earliest Funding Time: 30 days
- Minimum Requirements: Must live in the U.S. and be at least 18 years old, loan must be used for business purposes
Best for Short-term Loans
Fora Financial
Vault Verified
Why we chose it: Fora Financial accepts applications from business owners with a credit score of at least 500, which is significantly less than many other online lenders. Plus Fora Financial reports payment activity to commercial credit bureaus, which can help you build positive business credit for future lending and vendor partnership needs.
Pros
- Considers credit scores of 500 or higher
- Requires little documentation
- Can receive funds within 24 hours
Cons
- Higher borrowing costs
- Requires a personal guarantee
- May have to make daily or weekly repayments
Additional Information
- Minimum Credit Score: 500
- Factor Rates: 1.15 to 1.40
- Earliest Funding Time: 24 hours
- Minimum Requirements: Your business must generate at least $15,000 in monthly gross sales
Best for Working Capital Loans
PayPal
Vault Verified
Why we chose it: PayPal offers a unique lending model for working capital loans by funding a business with a lump sum in exchange for a percentage of future PayPal invoice payments made by your customers. If your business depends heavily on PayPal invoicing, this could offer your business a lifeline without the hassle of a credit check.
Pros
- Available to a business established for at least three months
- Uses alternative approval based on PayPal invoices, not credit
- Funding available within minutes in some cases
Cons
- Can only have one working capital loan with PayPal at a time
- Requires a percentage of future PayPal invoices or a minimum payment within the first 90 days
- Doesn’t disclose fixed-fee amount up front, making it harder for comparison
Additional Information
- Minimum Credit Score: No required
- Minimum Payment: 5% of total payment amount for loans expected to be paid off in 12 months or more or 10% for loans expected to be repaid in less than 12 months
- Earliest Funding Time: Same-day
- Minimum Requirements: Must be in business at least 3 months, at least $20,000 in PayPal Premier invoicing or $15,000 for PayPal Business Accounts and funds used for business purposes only
Best for Invoice Factoring
eCapital
Vault Verified
Why we chose it: With invoice factoring, you sell your business’ outstanding invoices to a third-party company. This can offer a viable option for a startup with bad credit or no credit history. eCapital also doesn’t place restrictions on the amount of time in business to provide invoice factoring services.
Pros
- Offers non-recourse factoring so your business isn’t responsible for unpaid invoices from customers
- Same-day funding available
- *Offers advance rates on the value of accounts receivable of up to 100% for transportation, up to 95% for staffing and up to 90% for other industries
Cons
- Doesn’t disclose factor fees
- Charges extra fees for instant fund transfers
Additional Information
- Minimum Credit Score: N/A
- Earliest Funding Time: Same-day funding possible
- Minimum Requirements: Must have invoices less than 90 days old
What Is a Bad Credit Score?
If a lender relies on a personal credit score for creditworthiness, chances are it’s using the FICO® scoring model. FICO considers a bad credit score any score of 579 or less. Fair credit scores range from 580 to 669. Having fair or bad credit can make it more challenging when applying for loans. And even if approved, you’ll pay higher interest rates and receive less favorable repayment terms.
Types of Startup Business Loans With Bad Credit
There is more than one type of business loan available, which may offer a startup business with bad credit a better chance of finding an appropriate loan. Business loans fall into two categories: secured and unsecured.
A secured loan requires collateral, which makes it easier for a business to qualify for because you secure the loan with something of value, which helps to reassure lenders in case of a business loan default. An unsecured loan doesn’t require collateral but typically has much more stringent requirements, which a business with bad credit will have a harder time getting approval for. There are secured and unsecured loan options available across numerous loan types, including:
- Term loans. Term loans offer a lump sum of cash you typically repay in equal installments over a set period..
- Business lines of credit. With a business line of credit, you only borrow funds as you need them, up to a predetermined credit limit. Once you borrow the funds then a predetermined repayment schedule goes into effect.
- Microloans. A microloan refers to loans offered in smaller amounts, often $50,000 or less. They’re considered less risky for the lender and easier for a business to qualify for.
- Invoice financing. With invoice financing you receive an advance, or lump sum, from a lender based on a percentage of an unpaid invoice amount. This percentage is anywhere from 60% to 90%, depending on the industry. Then when you receive the payment from your customer, you pay back the percentage borrowed, plus additional fees and interest.
- Invoice factoring. With invoice factoring, business owners sell outstanding invoices to a third-party factoring company. The factoring company collects the payment on the invoices and then charges a factor fee for each invoice.
- Merchant cash advances (MCAs). An MCA is an alternative form of short-term financing and technically isn’t considered a loan. The lender provides a lump sum amount upfront in exchange for a percentage of the business’s credit card transactions until the loan is repaid in full. This is often a last resort option since it can come with higher rates than most other types of loans. A PayPal working capital loan is an example of a merchant cash advance, relying on a percentage of future PayPal invoices or a minimum payment schedule as part of the repayment terms.
How To Choose a Startup Business Loan for Bad Credit
A startup company has unique challenges not only in launching a business but also in securing funding. Consider the following factors when selecting a startup business loan for bad credit.
Eligibility Requirements
Make sure to research the eligibility criteria of a lender and whether they work with a startup business or a business with a bad credit score. Many lenders require an established time in business, such as six months or two years. The lender may also place restrictions placed on what the funds can be used for or where your business is located, in addition to evaluating creditworthiness.
Interest Rates
Interest rates vary and can range from 25% to 60% or higher for bad credit business loans. Some lenders may charge factor rates instead of interest rates. Take time to compare these types of loans with the total costs of loans that use interest rates to see which is more affordable.
Repayment Terms
Instead of monthly payments, some lenders may require daily, weekly or bi-weekly payments. Some lenders will also limit your repayment terms to two years or less, which can mean much higher payments. Make sure to understand the repayment schedule up front, since there are typically fees associated with missing payments.
Funding Speed
If time is of the essence for receiving funds, then look for a lender offering same-day or next-day funding. Not all lenders offer quick funding and typically the faster the funding, the higher the fees or interest rates.
Frequently Asked Questions
Do You Need Collateral to Get a Startup Loan With Bad Credit?
Not all lenders require collateral for a loan, even if you have bad credit. But offering collateral gives you a chance to qualify for a loan with more favorable rates and repayment terms. Plus, even if you don’t have to put up collateral to secure the loan, many lenders will require a lien against your business or a personal guarantee until the loan is repaid in full.
Are There Alternatives If You Can’t Get a Business Loan With Bad Credit?
Yes, there are other lending alternatives if you can’t get a business loan because of bad credit, such as using a secured business credit card or turning to friends and family for a loan. But first, find out why your application was denied. You may be able to address the concern or work with another lender with different eligibility criteria.
Can I Get a Startup Business Loan With a Credit Score of 500?
Yes, online lenders are willing to work with startup businesses with a credit score of at least 500. Many of these lenders require being in business for at least a year and typically charge higher interest rates and fees.
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