Best Business Lines of Credit for Bad Credit

If you have bad personal credit and are looking for financing for your business, you probably know that your options are limited. When it comes to most small business loans and lines of credit, lenders first and foremost will consider your credit score to determine if you qualify.

However, there are financing solutions for business owners with bad credit. So, if you need working capital or simply flexible access to funds, you may consider a business line of credit for bad credit.

With a line of credit, you gain sustained access to a revolving pool of funds, which you can draw from at any time to cover your business’s running expenses.

In this guide, we’ll list four of the best options for business lines of credit for bad credit. We’ll also explain how to qualify for these kinds of credit lines, how to decide if a bad credit line of credit is right for you, and several alternative options available if a line of credit is not the best fit for your business.

The top business lines of credit for bad credit typically come from online, alternative lenders.

Ultimately, one of the best actions you can take is to work on improving your credit score. However, if you need access to capital sooner rather than later, you can apply for a business line of credit from a lender with more flexible qualification requirements (like those named above). Borrowing and repaying a line of credit responsibly can then help you to improve your credit history.

To obtain a line of credit, you’ll need to supply financial information about you and your business. The specific requirements and process will depend on the lender you’re working with, but most lenders will consider the following factors when reviewing your application. 

Annual Revenue

One of the most important parts of your line of credit application is your business’s annual revenue. The more revenue you can show, the more likely you will be to qualify for a business line of credit (bad credit aside) and the more affordable interest rates you’ll be able to receive. A high revenue proves to lenders that your business takes in enough to pay back any capital you may draw from your credit line. 

Current Debt Obligation

If you’re currently paying back a business loan, you may have trouble qualifying for a second loan, even a business line of credit for bad credit. This is because most lenders don’t want to take what’s called “second position” to another lender.

In other words, if your business goes bankrupt and your assets are liquidated, the original lender will be compensated for your remaining debt, leaving the second lender in an unfortunate position. If a lender takes a second position, it means they wouldn’t get their money until the lender in the first position is completely paid back.

Therefore, many lenders will be looking to confirm that you don’t have any other debt obligation at this time. If you do have existing debt and are looking for financing options, you may consider refinancing your existing loan or exploring a business debt consolidation loan.

Cash Flow

When you’re applying for a business line of credit, especially with a bad credit score, lenders will want to know how well you manage your cash flow—and how much cash you tend to keep on hand.

Because a lender’s main concern is whether you’ll be able to make your loan payments, demonstrating that your business makes and keeps enough money to afford those regular expenses will go a long way to helping you qualify for a business line of credit for bad credit.

To understand your cash flow, nearly every lender will want to see at least three months of your business bank statements. If you have a history of NSFs (non-sufficient funds), however, you may want to wait a few months before applying for a line of credit, as many lenders won’t accept business owners with NSFs on their account within recent history.

If you can first work on improving your credit score and wait to apply for a business line of credit or other business loans, you’ll find you have more options to choose from and will be able to access better rates and terms. But if you need financing in the near term, here are the important factors to understand that may impact your decision to take out a line of credit.

Ultimately, it will be up to you to decide whether a bad credit line of credit is the right solution for you. But a line of credit may make sense for your business if you:

• Need quick access to funds. Business lines of credit will generally be easier and faster to apply for than business term loans.
• Need to cover seasonal or temporary expenses. The flexibility of a line of credit makes it ideal to cover these purposes, as opposed to a lump sum term loan.
• Want control. A business line of credit is the only product (other than a credit card) that allows you to pay interest solely on the funds you draw. Plus, you can draw on your credit line whenever you need funds.
• Don’t have collateral to offer. Options for unsecured business lines of credit are available, meaning you may not have to put up physical collateral to access these funds.
• Want to build or improve your business credit score. Using a business line of credit responsibly can be an easy way to build your business credit history and improve your business credit score.

If you’re wondering whether your personal credit score is considered “bad” and may therefore limit your loan options, here’s a breakdown of the typical credit score ranges and what they mean for your financing options.

• Below 550: Your best option if your score falls in this range is to take active steps to improve your personal credit score and to build your business credit score before seeking financing.
• 550 to 600: You may qualify with some alternative lenders. Invoice factoring/financing and equipment financing are also options within this range.
• 600 to 650: Your small business loan options start to expand a bit in this range. With some time in business and good financial standing, you’ll be most likely to qualify with an alternative lender.
• 650 to 700: You’re in good shape in this credit range. You can qualify for many business loans, especially with some time in business and strong business financials. 
• 700 or above: You’re in great standing and should qualify for just about any type of business financing including bank loans and SBA loans, which are usually some of the most difficult to qualify for.

4 Steps to Improve Your Credit Score

1. Pay your debts on time and in the full amount owed. 35% of your credit score is determined by your payment history.
2. Keep your credit utilization below 30%. It’s important to use the credit that’s extended to you, but maxing out your available credit is not advised as doing so can have a negative effect on your score. 
3. Maintain the length of your credit history. Don’t make the mistake of closing your oldest accounts. The length of your credit history contributes to 15% of your overall credit score. 
4. Monitor your credit report for mistakes. Credit bureaus do make errors in credit reports. If you notice an error on yours, report it right away to the credit bureaus.

If you’ve determined you fall into the “bad credit” category and a business line of credit does not appear to be the right fit for your business financial needs, here are several options available to business owners with lower credit scores.

• Business credit card
• Invoice financing
• Equipment financing
• Microloan
• Merchant cash advance
• Crowdfunding
• Business grant
• Friends and family