Yes, but your options are narrower and more expensive

You can get a small business loan with bad credit, but lenders will charge you higher interest rates, require a larger down payment, or both. Banks will turn you down — their credit cutoff is usually 680 or higher — but credit unions, online lenders, and the SBA itself have programs that work with scores in the 500s and 600s. The trade-off is real: a loan that costs 8% at a bank might cost 15% to 25% from an online lender, and you may need to pledge personal assets or a personal may provide.

Your credit score is not the only thing lenders look at. They also examine your business revenue, how long you have been operating, your cash flow, and whether you have collateral. A business with two years of strong revenue and bad personal credit has better odds than a startup with perfect credit but no income history. Understanding what each type of lender actually requires — not just what they advertise — is the difference between finding real options and wasting time on dead ends.

Key Takeaways

  • Banks typically require a credit score of 680 or higher; credit unions and online lenders work with scores as low as 500, but charge 15% to 25% interest instead of 8% to 12%.
  • SBA loans (7(a) and Microloan programs) have no official credit score minimum, but most SBA lenders still prefer 640 or above and will scrutinize your business finances heavily if your score is lower.
  • Your business revenue, time in operation, and cash flow matter as much as your credit score — a two-year-old business with $500,000 in annual revenue and a 550 credit score has better odds than a startup with a 700 score and no income.
  • Online lenders and credit unions often require a personal may provide, meaning you are personally liable if the business cannot repay, even if you formed an LLC or corporation.
  • Collateral or a down payment of 10% to 30% is common with bad credit, and some lenders will accept business equipment, inventory, or accounts receivable instead of cash.

What credit score do SBA lenders actually require

The SBA itself has no official minimum credit score for its 7(a) loan program or Microloan program. However, most SBA-approved lenders still prefer a score of 640 or above and will rarely approve below 580 without strong compensating factors. Those compensating factors are: two or more years of business tax returns showing consistent or growing profit, a detailed business plan, collateral, and a personal may provide from the owner.

If your score is between 580 and 640, you have a real shot with SBA lenders, especially if your business has been operating for at least two years. If your score is below 580, most SBA lenders will decline you outright, though a few credit unions and community development financial institutions (CDFIs) may still consider you if your business revenue is strong. The SBA publishes a list of approved lenders by state on sba.gov; calling three to five of them and asking their actual credit score floor is faster than applying blind.

How online lenders and credit unions differ from banks

Online lenders use different underwriting than banks. They look at your business bank statements, credit card processing history, and revenue from the past three to six months, not just your credit score. This means a business that has been operating for six months with solid revenue can get approved even with a 550 credit score — something a bank would never consider. The catch is the cost: interest rates run 15% to 25% annually, sometimes higher, and origination fees of 3% to 10% are standard.

Credit unions are slower but often cheaper. Many credit unions offer small business loans to members with credit scores as low as 600, at rates of 10% to 15%. You must be a member first, which usually requires a small deposit or membership fee. Credit unions also tend to be more flexible about what counts as collateral — they may accept business equipment, inventory, or even a lien on your personal home, whereas online lenders often want cash or a personal may provide only.

The SBA Microloan program, run through nonprofit intermediaries, is designed for borrowers with weak credit and limited collateral. Loans max out at $50,000, interest rates are 8% to 13%, and many intermediaries offer free business training. The trade-off is a longer approval process — four to eight weeks — and stricter income documentation requirements than online lenders demand.

What lenders actually look at besides your credit score

Your business revenue is the single strongest factor after credit score. Lenders want to see that your business generates enough cash to repay the loan. Most require at least one year of business tax returns or bank statements; some online lenders will approve based on six months of statements if the revenue trend is strong. If you are a startup with no revenue history, almost no lender will approve you, regardless of your personal credit score.

Time in business matters. A business operating for two years or longer is far more likely to be approved than a one-year-old business, even with identical revenue and credit scores. Lenders view longevity as proof that your business model works and that you can manage operations through a downturn.

Collateral and down payment reduce the lender's risk and improve your odds significantly. If you can put down 20% to 30% of the loan amount in cash, or pledge business equipment, inventory, or real estate, lenders will often approve you at a lower rate or with a lower credit score requirement. A personal may provide — your promise to repay the loan from your personal assets if the business fails — is almost universal with bad credit and is often required even with good credit.

How to prepare your application with bad credit

Gather two years of business tax returns and the most recent three months of business bank statements. If you are a sole proprietor, lenders will also want your personal tax returns. Organize these documents before you apply; lenders will ask for them anyway, and having them ready speeds up the process and shows you are serious.

Write a one-page business plan that explains what you do, how long you have been operating, who your customers are, and how you will use the loan. This does not need to be elaborate — lenders with bad-credit borrowers want to see that you have thought through your business, not a polished 20-page document. Include a brief explanation of why your credit score is low (job loss, medical emergency, divorce) if there is a clear reason. Lenders know that bad credit does not always mean bad business judgment.

Get a copy of your credit report from annualcreditreport.com and review it for errors. Dispute any inaccuracies before you apply; correcting a false late payment or removing a duplicate account can raise your score 10 to 50 points. If your score is in the 500s, even small improvements help.

Research lenders before you apply. Call three to five SBA lenders, credit unions, or online lenders and ask their credit score floor and what documents they need. Some lenders specialize in bad-credit borrowers and will tell you upfront whether you have a shot. Applying to the wrong lender wastes time and generates a hard inquiry that temporarily lowers your score.

When to consider alternatives to traditional loans

If you cannot get approved for a loan, a business line of credit may be easier. Lines of credit are often approved with lower credit scores than term loans, and you only pay interest on the amount you draw. Credit unions and some online lenders offer them, and approval can come in days rather than weeks.

A merchant cash advance is another option, though it is expensive. The lender gives you a lump sum upfront and takes a percentage of your daily credit card sales until the advance is repaid. Rates are high — the equivalent of 20% to 40% annual interest — but approval is fast and credit score requirements are minimal. Use this only if you have no other option and can repay within six to twelve months.

If you own real estate, a home equity line of credit or home equity loan may offer lower rates than a business loan, though it puts your home at risk. Some business owners use this route when their business credit is weak but their personal credit and home equity are strong.

A business partner or investor who can co-sign or may provide the loan improves your odds with any lender. The co-signer's credit score and income are evaluated separately, and if they have good credit, many lenders will approve the loan at a better rate.

What to expect in terms of cost and timeline

Interest rates for bad-credit borrowers range from 10% to 25% depending on the lender type and your specific situation. Banks: 8% to 12%. Credit unions: 10% to 15%. Online lenders: 15% to 25%. SBA loans: 8% to 13%. These are approximate; your actual rate depends on loan amount, term, collateral, and how much lower your credit score is than the lender's preference.

Origination fees and other costs add to the total. Online lenders often charge 3% to 10% upfront. Banks and credit unions charge 1% to 3%. SBA lenders charge 2% to 3%. These fees are sometimes deducted from the loan amount you receive, so a $50,000 loan with a 5% fee means you get $47,500 and owe back $50,000.

Approval timelines vary. Online lenders can approve and fund in three to five business days. Credit unions typically take one to two weeks. Banks take two to four weeks. SBA loans take four to eight weeks because the SBA must review and approve the lender's decision. If you need money quickly, an online lender is faster; if you can wait, an SBA loan or credit union loan will cost less.

Frequently Asked Questions

Will getting turned down by one lender hurt my chances with another?

A hard inquiry from one lender lowers your credit score by a few points temporarily, but multiple inquiries within 14 to 45 days (depending on the credit bureau) typically count as a single inquiry. Apply to two or three lenders within a short window if you want to compare offers. Waiting weeks between applications means each one hits your score separately.

Can I get approved without a personal may provide?

Rarely with bad credit. Most lenders require a personal may provide, which means you are personally liable for the loan if the business cannot repay. Some SBA lenders will waive this for loans under $25,000 if you have strong business revenue, but it is uncommon. Ask each lender whether they require one before you apply.

Does my business structure (LLC, S-corp, sole proprietor) affect my chances?

It can. Sole proprietors are easier to approve because the lender can look at personal credit and income. LLCs and corporations require the lender to evaluate the business separately, which means they rely more heavily on business revenue and less on your personal credit score. If your business is profitable, forming an LLC or corporation may actually improve your odds.

What if my business is brand new with no revenue yet?

Almost no traditional lender will approve you. Your best options are a personal loan (if your credit allows), a business line of credit from a credit union (sometimes available to new businesses), or a co-signer with good credit and income. Some SBA lenders will consider a startup if you have relevant industry experience and a detailed business plan, but approval is rare and usually requires collateral.

Should I try to improve my credit score before applying for a loan?

If your score is below 580, spending three to six months paying down credit card balances and correcting credit report errors can raise your score 30 to 100 points, which opens up cheaper lenders and lower rates. If your score is 600 or above, the benefit of waiting is usually smaller than the cost of delaying your loan. Calculate the interest rate difference: if waiting six months saves you 3% on a $100,000 loan, that is $3,000 per year, which may be worth it. If it saves you 1%, it probably is not.