Bad credit business loans: Your options & applying successfully

5 min Read Published: 13 May 2024

How to get a business loan with bad creditIf you are a business owner with a history of poor credit, you can still benefit from a business loan to boost cash flow and grow your business. Specialist bad credit business loans can offer a borrowing option for companies with few other viable alternatives. In this article, we explain why you might have poor credit, how to apply for a business loan with bad credit and what happens if you are declined.

Can you get a bad credit business loan?

In most cases, you will be able to get a business loan, even with a history of poor credit. However, lenders will see you as a higher risk due to your poor credit history. So, you might be offered less money, face higher interest rates and have a shorter repayment period.

If you are a sole trader, your personal credit score will be looked at when applying for a business loan. Limited companies will have their business credit score scrutinised but be prepared for lenders to look at your personal credit score too.

Depending on your circumstances, your business might have access to different types of loans, we will cover all of your business loan options in this guide.

What types of bad credit business loan can you get?

There are a variety of business loan options, even for those with a bad credit rating. However, not all of the following loans may be applicable depending on your financial situation.

  • Merchant Cash Advance - for businesses that take regular credit and debit card payments from customers. This flexible loan agreement allows the lender to take a percentage of every sale you make to pay back the loan.
  • Secured Business Loan - if you have assets, you might be eligible for a secured business loan. The loan is secured to an asset which will be seized if you fail to meet the repayments, giving the lender some security even if you have poor credit.
  • Short-term Business Loan - a smaller business loan with a shorter repayment period, usually no longer than 12 months.
  • Business Lines of Credit - a business line of credit allows you to access money up to a set borrowing limit. During an agreed time period, your business will be able to withdraw money when needed.
  • Invoice Finance - instead of a loan, lenders will buy outstanding invoices from your business for a fee. This gives you an instant cash injection and is more lenient on businesses with bad credit.
  • Microloan - if you only require a small business loan (£500 - £10,000) then a microloan could be an option. Offered by non-profit organisations for underprivileged or socially responsible businesses.

How to apply for bad credit business loans

It is important to carry out research before applying for any loan, especially if you have a history of bad credit. We recommend speaking with a financial advisor before applying and explaining your situation.

We have an in-depth article where we explain how to apply for a business loan, which explains the application process in detail. Here are some tips to improve your chances of getting accepted when applying for a business loan with poor credit:

  • Check your personal and business credit score before applying
  • The longer your business has been operating, the better your chances of a loan
  • Make sure you have a strong business plan that demonstrates your revenue and repayment plans
  • Consider securing the loan against your assets. For example, sole traders can secure a business loan to their house
  • Pay off any outstanding debts before applying for a business loan
  • Calculate whether you can afford to repay a loan

How to compare the best bad credit business loans

Before applying for a business loan with bad credit, you should compare different lenders to get the best deal. When comparing the best business loan you should consider the following:

  • Interest rate - business loans for bad credit will have a higher interest rate than usual
  • Loan amount - if you have poor credit, you might be offered less money
  • Loan term - some bad credit business loans may be short-term (up to 12 months)
  • Secured or unsecured business loan - if you are a sole trader, consider using your house to secure the loan as you may be offered better rates. If you are a limited company, take a look at what business assets you could secure the loan to

Make sure you use a business loan comparison website to compare the different loan options for bad credit. Also, speak to a financial advisor before applying to ensure it is the right decision for your business.

Reasons your business may have a poor credit history

Before applying for a business loan, be sure to understand why you have bad credit as you may be able to improve it. As far as a lender is concerned, having bad credit means that your business poses more of a risk when borrowing money.

Your credit score is ultimately determined by your credit history which can be damaged in a number of ways, including:

  • Missed or late payments on loans, bills, rent etc.
  • Exceeding your existing credit limit
  • Defaulting on previous credit agreements
  • Having a County Court Judgement (CCJ) made against you or your business
  • You have declared bankruptcy in the past
  • Liquidated a previous company
  • You have been associated with other failing businesses
  • Company directors or senior management are facing personal credit issues

Do you need a bad credit business loan?

To work out if you need a bad credit business loan, you first need to look up your credit score. It is important to note that there isn't one universal credit score. The three main credit reference agencies ExperianEquifax and TransUnion each have their own credit scoring criteria and so your score is likely to be different with each of them. Usually, you will require at least a ‘fair’ credit score to be offered a business loan at competitive rates.

We cover business credit score in our article 'What is a business credit score?'.

Experian credit rating score range

Many lenders will use Experian, the largest credit reference agency in the UK. Experian’s credit ratings are as follows:

  • Fair: 721- 880
  • Good: 881 - 960
  • Excellent: 961 - 999

Equifax credit rating score range

Lenders may also use Equifax when assessing the creditworthiness of your business. Equifax's credit ratings are as follows:

  • Poor: 0 - 438
  • Excellent: 811 - 850

Transunion credit rating score range

A lender may use Transunion when assessing your credit risk. Transunion's credit ratings are as follows:

  • Very Poor: 0 - 550
  • Poor: 551 - 565
  • Fair: 566 - 603
  • Good: 604 - 627
  • Excellent: 628 - 710

Can you get bad credit business loan if your business has been refused credit in the past?

If your business has been refused credit in the past, you may still be able to get a business loan. Typically, you should wait at least six months before applying for a business loan again.

When applying for a loan, lenders will carry out a hard credit check which leaves a mark on your credit file. If too many hard checks appear on your credit report, lenders might worry that you and your business are desperate for money.

Why do business loan applications get declined?

If your business loan is declined, it could be for several reasons, including the following:

  • Poor credit - this is the main reason your business loan will be declined, which is why it is important to check your personal and/or business credit score before applying
  • Missed or late payments - this will negatively affect your credit history and can stay on record for at least five years
  • Multiple lines of credit - this can impact your ability to receive more funds from lenders
  • Young business - if your business is fairly new, this can impact lenders accepting your application
  • Multiple applications - you should never apply for multiple loans at once. Make sure that you take the time to understand why you were declined before applying for a new loan

Next steps if your business loan is declined

The next step would be to improve your personal or business credit score, depending on whether you are a sole trader or limited company. Here’s how:

  • Pay bills on time
  • Clear unpaid personal and business debts
  • File taxes regularly and on time
  • Reassess your business plan to see if you can cut costs and increase revenue

After a few months of following the above steps, you should be in a stronger position to apply for a business loan.