In short
- Bad credit narrows your options and raises the cost, but it does not always rule out business funding.
- Many lenders weigh steady bank deposits, time in business and cash flow as much as the credit score.
- Products tied to an asset or to sales, such as equipment financing and invoice factoring, are often easier to approve.
- Avoid up-front fees, guaranteed approvals and borrowing more than your cash flow can carry.
The honest starting point
A low personal credit score makes business financing harder and more expensive. Bank loans and government-backed programs usually want good credit, and the lenders who will work with lower scores charge more to cover the risk. That is the reality.
It is also true that a credit score is only one part of the picture. Many lenders who fund small businesses look closely at the business itself: how much money comes into the bank account each month, how steady it is, how long the business has been running, and what the money will be used for. A business with a bruised score but strong, consistent deposits often has more options than the owner expects.
This guide covers what lenders look at, the options that tend to work, what to avoid, and how to improve your position over time.
What lenders weigh besides your credit score
- Monthly bank deposits. For many lenders, this is the most important number. In our network, lenders generally look for at least $20,000 in average monthly deposits into a business bank account. Each lender sets its own criteria.
- Consistency. Steady deposits month after month look better than one big month and three quiet ones.
- Time in business. Most lenders in this market want at least a year of operating history. See startup business funding if you are newer than that.
- Bank account health. Frequent overdrafts, returned payments (NSFs) and very low daily balances are red flags, sometimes bigger ones than the score itself.
- Existing debt. Other loans and especially existing cash advance payments reduce how much more a lender thinks you can carry.
- The reason behind the score. A medical bill or a divorce from years ago reads differently than recent missed payments. Some lenders will listen to a short, honest explanation.
- Collateral and invoices. Equipment, vehicles or unpaid invoices from creditworthy customers can make up for a weaker score.
- Industry. Some lenders avoid certain industries; others specialise in them.
Lenders in our network generally work with credit scores from about 500 and up, though the lower the score, the fewer the options and the higher the cost.
Options that tend to work with lower credit
Equipment financing
If you need a truck, oven, machine or other equipment, equipment financing is often one of the easier approvals, because the equipment itself secures the deal. Illustrative rates run roughly 6-20% APR depending on the equipment, the term and your profile, with weaker credit at the higher end or with a larger down payment. Our guide to equipment financing vs leasing explains the choice.
Invoice factoring
If you bill other businesses, invoice factoring depends mostly on your customers' ability to pay, not your credit score. You typically receive roughly 80-95% of the invoice up front and the rest, minus a fee of roughly 1-5% per month the invoice is outstanding, when your customer pays. See how invoice factoring works.
Revenue-based working capital
Some working capital lenders focus on bank deposits more than credit. Terms are shorter and costs are higher than a bank loan. Typical terms run up to about 24 months, with daily, weekly, bi-weekly or monthly payments depending on the lender and the file; that is typical, not a promise.
Merchant cash advance
A merchant cash advance is usually the easiest to get with bad credit and among the most expensive. Illustrative factor rates run roughly 1.15-1.45. It can make sense for a short, specific need with a clear return, and it can do real damage when used to cover ongoing losses. Read is a merchant cash advance worth it? before you consider one.
Secured term loans and lines of credit
If you have collateral, a secured term loan or line of credit may be available at a better rate than unsecured options. Community lenders and credit unions are also worth asking; some are more flexible about credit history for local businesses.
Government-backed loans
Government-backed loans such as the SBA programs in the US or the Canada Small Business Financing Program are made by lenders, who set their own credit standards. They usually want solid credit, so they are harder to get with a low score, but not impossible for a business with a strong history and a clear explanation. See SBA 7(a) vs 504.
What bad credit costs: an illustrative example
A lower score usually means a higher rate. Here is what that difference looks like on the same loan. Figures are illustrative only.
| $50,000 over 24 months | At 12% APR | At 25% APR |
|---|---|---|
| Monthly payment | About $2,354 | About $2,669 |
| Total repaid | About $56,488 | About $64,046 |
| Cost of the money | About $6,488 | About $14,046 |
The payment difference is about $315 a month, but the total cost more than doubles. That is why it is worth improving your profile before borrowing if you can wait, and why, if you cannot wait, it is worth borrowing only what you need and planning to refinance once your credit improves. If the offer uses a factor rate instead of an APR, see factor rate vs APR to compare fairly.
What to avoid
- Up-front fees before approval. Be wary of anyone who asks you to pay a fee to “secure” or “guarantee” a loan before funding. The FTC has general guidance on protecting a small business from scams, and the warning signs apply to business owners too.
- Guaranteed approval. No legitimate lender can guarantee approval before seeing your file.
- Requests for passwords. Do not share online banking passwords. Legitimate lenders use statements or secure, read-only bank connections you control.
- Borrowing more than you need. A bigger offer is not a better offer when the rate is high.
- Stacking. Taking a second or third short-term advance to cover the first is one of the fastest ways to make a hard situation worse. See MCA stacking.
- Signing without reading. With higher-risk financing, the contract terms matter more. Use our guide on how to read a business loan offer.
- Applying everywhere at once. Several hard credit inquiries in a short time can lower your score further. Find out which lenders do a soft pull to pre-qualify.
How to improve your odds, now and later
Before you apply
- Get your documents ready. Lenders generally want the most recent 3 months of business bank statements in the US, or the most recent 6 months in Canada, as complete PDFs with all pages, plus a fully completed application. See documents lenders need.
- Clean up the bank account. A couple of months without overdrafts or returned payments can make a real difference.
- Run revenue through the business account. Deposits that go to a personal account or stay in cash do not count toward what lenders see.
- Check your credit reports for errors and dispute anything that is wrong. In the US, the CFPB explains how to get and dispute credit reports; in Canada, the Financial Consumer Agency of Canada does the same.
- Prepare a short explanation of any past credit problem and what has changed.
- Know how much you need and why. A specific amount for a specific purpose is easier to approve than a round number.
Over the next 6-12 months
- Pay every bill on time. Payment history carries a lot of weight in most scoring.
- Bring down balances on personal credit cards.
- Open trade accounts with suppliers that report to business credit bureaus and pay them on time, to build a business credit history separate from your own.
- Keep your business and personal finances separate.
- If you take a higher-cost product now, make it a bridge: pay it on schedule, then look to refinance into something cheaper once your score and history improve.
How CELER Funding helps
CELER Funding is a free referral service, not a lender, and lenders may pay us a referral fee when a deal closes. Our intake does not pull your credit. We look at your whole profile, including deposits, time in business and what the money is for, and introduce you to independent lenders across Canada and the United States who are realistic for your situation. If the only options available would put the business under strain, we will tell you that honestly, and suggest what to work on first.
This guide is general information, not financial, legal or credit advice. When you are ready, tell us about your business.