How to Get a Business Loan with Bad Credit

If your business has a bad credit rating, lenders may view you as a greater risk. This can make it more difficult for you to get accepted for a loan, but not impossible. There are several business finance options to consider if you have bad credit.

Caroline Ramsey, Rhiannon Philps Last updated on 17 June 2022.
How to Get a Business Loan with Bad Credit

Securing funding for your business if you have a poor credit record may not be as straightforward as it is for those with a healthy credit history, but it’s not impossible. In fact, with a growing number of alternative lenders in the marketplace, there are several options if your business has a bad credit rating and needs finance.

By researching the types of funding available, you may be able to find a loan that’s suitable for your business, even if you do have a poor credit history.

Why does my business have bad credit?

If your business has a bad credit history, it’s worth taking some time to understand why that may be the case. When you know why you have a bad credit history, you are then in a better position to address it and work to improve it.

You could have a poor business credit rating for one of the following reasons:

  • You’ve missed repayments in the past or defaulted on a credit agreement.
  • Your business has gone over one or more existing credit limits (such as on an overdraft).
  • You’ve recently made several applications for credit in a short space of time.
  • Your business has received county court judgments (CCJs).
  • Your business has been subject to a winding-up order in the past, even if it was rejected. A winding-up order or petition is submitted by creditors who want to seek repayment of debts by closing down your company.

If you’re a sole trader, you won’t have a separate business credit score as your personal and business finances are viewed as one and the same.

This means lenders will look at your personal credit history if you want to borrow money for your business.

In some cases, lenders may also look at the personal credit histories of directors of limited companies, as well as their business credit rating. As a result, it’s worth checking your personal credit score if you plan to apply for a business loan.

If you have a poor personal credit score, it could be for a variety of reasons:

  • You’ve previously missed credit repayments or gone over a credit limit.
  • You have an individual voluntary arrangement (IVA), CCJ, a debt management plan, or bankruptcy recorded on your credit history.
  • You may be already using a large proportion of your available credit.

What finance options are available if my business has bad credit?

Even if your business has bad credit, there are still a number of funding options you could consider. Make sure you research all the available sources of finance to help you work out which ones, if any, are right for your business.

Bad credit business loan

While some major banks and providers may not accept applications from businesses with poor credit, there are a number of alternative, online lenders who offer bad credit business loans.

Many will consider business loan applications on a deal-by-deal basis and might be more open-minded about your situation.

These would work like standard loans, as you borrow a lump sum of money and repay it, with interest over an agreed period.

Bear in mind that interest rates on a business loan may be higher if you have a bad credit history, than if you had what would be considered a good credit history.

Peer-to-peer business lending are an alternative provider of business loans and may be another option you might consider.

» MORE: Can I get a business loan?

Personal guarantee

To help your business loan application, you could offer a personal guarantee.

This is when you promise to repay the loan yourself, from your own personal finances, if your business is unable to do so. It makes you personally liable for the debt, which can make lenders feel more confident that they will get their money back. As a result, they may be more willing to offer you a loan.

Secured business loan

You may stand a better chance of getting a business loan if you provide some form of security, such as property, machinery, or any other business assets.

If your business fails to repay the loan, the lender can repossess these assets to ensure they get the money they are owed. Even though this minimises the risk to the lender, and could make them more likely to offer you a loan, you need to consider the potential risk that you could lose your assets if you fall behind on repayments.

» COMPARE: Secured business loans

Merchant cash advance

Also called a business cash advance, this could be an option for your business if you handle a lot of card transactions. With this type of finance, you may be able to borrow a lump sum and then repay it through customer payments on your card terminal. So, whenever your business receives a card payment, a percentage will be deducted from it to go towards repaying the loan.

Even though your credit history is an important factor for lenders when you apply for a merchant cash advance, your cash flow will be just as important, if not more so.

The amount you could potentially borrow will depend on your turnover and how much money you make from card sales.

» COMPARE: Merchant cash advances

Invoice finance

Invoice financing is a type of secured business finance that uses your unpaid business invoices as security.

Providers offer a loan based on a percentage of the business’s unpaid invoices, which means you could access the money immediately rather than waiting for a customer to pay their invoice.

» COMPARE: Invoice financing companies

Asset finance

If you need to get some equipment or machinery for your business but can’t afford to pay for it upfront, you could opt for asset finance.

This would allow you to spread the cost of an asset over a specified period of time, after which you would own the asset outright or return it. This will depend on the type of asset finance contract you have.

If you already own some assets, you may be able to use their value to release some cash as lenders could offer a loan based on how much they are worth. This is known as asset refinancing.

» COMPARE: Asset finance

Business grants

As well as finance that your business has to repay, it may be worth looking to see if you’re eligible for any business grants which you don’t have to repay.

There are a wide range of national, regional, local and industry-specific grants available, which could give your business the funding it needs to achieve its goals.

» MORE: Top small business grants in the UK


Searching for funding for your business using a crowdfunding platform may be an option that’s worth considering.

There are different types of crowdfunding options available, including equity-based crowdfunding, which is where the people providing the funding get a stake in your business. If you choose to try out crowdfunding, make sure you do your research and consider all of the risks involved before getting started.

» MORE: Crowdfunding for businesses explained

How to improve your chances of getting a business loan with bad credit

If your business has a bad credit history, there are some things you can do to potentially help improve your chances of getting approved for your chosen form of business finance.

Improve your credit score

Improving your business credit rating could help you access more types of business finance and more competitive interest rates. Below, are some ways to try to improve your credit history:

  • File your full business accounts at Companies House (if you’re a limited company).
  • Pay bills and other credit payments on time.
  • Make sure all information on your file is up to date, including your company address.
  • Limit your credit applications. You can check your eligibility for business loans from many providers before applying, which won’t affect your score.
  • Ask any of your suppliers to share your payment record with credit reference agencies (CRAs).

» MORE: How can I improve my business credit rating?

It is also worth seeing if you can improve your personal credit score, especially if you are a sole trader, as lenders will look at this to make decisions about your application. You can potentially improve your credit score by:

  • making payments on time
  • limiting your credit applications
  • registering to vote
  • keeping your credit utilisation low

» MORE: How to check your credit score

Add some form of security

Lenders may be more likely to offer you a loan if they have the assurance of some form of security.

This security could be a personal guarantee or an asset, such as property, vehicles or equipment. You may also be able to find a guarantor who agrees to repay the loan if your business can’t.

These kinds of loans reduce the risk for the lender as they can use the security to claim back the money they are owed if your business fails to repay the loan. However, you will need to consider the potential risk that you could lose your assets if you fall behind on repayments.

Make sure your business is in good financial health

While your credit rating is important, lenders will also want to see that your business is in a good place financially. If you can show that you have a healthy and reliable cash flow, lenders may be more confident that you would repay the loan in full and on time and so potentially be more willing to offer you a loan.

If your business doesn’t have much financial history because you have just started out, showing lenders a business plan and forecasts could help them make a decision and boost your application.

Borrow smaller amounts

Lenders may be more willing to approve your business loan application if you’re only asking for a small sum.

The larger the loan, the greater the risk for the lender, and so the more reluctant they may be to approve your application.

Think about how much funding your business actually needs and try not to apply for more than this.

» COMPARE: Business loan deals

About the authors:

Caroline Ramsey is a content creator who specialises in personal finance. More than a decade of working in editorial teams, she offers highly tailored content covering a number of topics. Read more

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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