Business Funding Despite Bad Credit

Bad credit doesn't mean no options—but it does mean being strategic about which options to pursue.

What Counts as "Bad Credit":

• ●Below 580: Significant challenges, focus on revenue-based options
• ●580-619: Limited options, higher costs expected
• ●620-659: Some traditional options available, better terms possible

Why Your Credit Score Is Low (And Whether It Matters): Different causes have different impacts:

Recent bankruptcy: Most limiting factor. Most lenders want 1-2 years post-discharge.

High utilization: Less damaging. Paying down balances can quickly improve score.

Late payments: Impact diminishes over time. Recent lates hurt more than old ones.

Collections/charge-offs: Concerning but not disqualifying for revenue-based products.

Limited history: Different from bad history. Some products accommodate thin files.

The Good News: Many lenders now use "alternative data" beyond traditional credit scores:

• ●Bank deposit history
• ●Cash flow patterns
• ●Revenue consistency
• ●Industry performance
• ●Time in business
• ●Customer reviews and reputation

These products evaluate your business performance, not your credit history:

1. Merchant Cash Advance (MCA) How it works: Advance against future credit card sales Why credit doesn't matter: Your daily card transactions are the "collateral" Requirements: 6+ months in business, $10K+ monthly card sales Typical terms: 1.2-1.5 factor rate, daily repayment from card sales Best for: Retail, restaurants, any business with strong card volume

2. Invoice Financing / Factoring How it works: Advance against your outstanding B2B invoices Why credit doesn't matter: Your customers' credit matters, not yours Requirements: Creditworthy customers, verifiable invoices Typical terms: 70-90% advance, 1-5% fee per invoice Best for: Contractors, staffing, manufacturing, distributors

3. Revenue-Based Financing How it works: Capital in exchange for percentage of monthly revenue Why credit doesn't matter: Monthly revenue consistency is the focus Requirements: 6+ months history, consistent monthly revenue Typical terms: 1.2-1.6 factor rate, weekly/monthly payments flex with revenue Best for: E-commerce, SaaS, businesses with recurring revenue

4. Equipment Financing (with down payment) How it works: Loan secured by the equipment being purchased Why credit doesn't matter as much: Equipment as collateral reduces risk Requirements: 20-30% down payment, equipment quote Typical terms: 3-7 years, rates higher than prime but workable Best for: Any equipment purchase—trucks, machinery, kitchen equipment

5. Secured Business Loans How it works: Loan secured by real estate, equipment, or other assets Why credit doesn't matter as much: Collateral reduces lender risk Requirements: Substantial collateral, clear title Typical terms: Varies by collateral type and value

Be realistic: bad credit means higher costs. But higher cost capital that grows your business is better than no capital.

Cost Reality for Bad Credit:

Merchant Cash Advance:

• ●Good credit: 1.15-1.25 factor rate
• ●Bad credit: 1.30-1.50 factor rate Example: $50K advance at 1.40 = $70K total payback ($20K cost)

Revenue-Based Financing:

• ●Good credit: 1.20-1.35 factor rate
• ●Bad credit: 1.35-1.60 factor rate

Equipment Financing:

• ●Good credit: 6-15% APR
• ●Bad credit: 15-30% APR Example: $100K equipment at 25% over 5 years costs ~$75K in interest

When Higher Cost Makes Sense: The math question isn't "Is this expensive?" but "Does this generate more value than it costs?"

Scenarios where it makes sense:

• ●Inventory that turns at 50%+ margin
• ●Equipment that increases revenue significantly
• ●Emergency that would cost more if unfunded
• ●Opportunity with time limit

Scenarios where it doesn't:

• ●Covering losses with no fix in sight
• ●Lifestyle expenses
• ●When cheaper alternatives exist
• ●When ROI is unclear

Reducing Your Costs:

• ●Offer collateral when possible
• ●Apply with strong recent bank statements
• ●Show consistent revenue history
• ●Start smaller, build payment history
• ●Refinance at better terms after 6-12 months

Even with bad credit, you can strengthen your application:

Make Your Bank Statements Shine: Bank statements often matter more than credit score for revenue-based products.

Do this:

• ●Maintain average daily balance above $0 (never go negative)
• ●Show consistent deposits (same clients, regular timing)
• ●Demonstrate positive cash flow (more in than out)
• ●Avoid overdrafts and NSFs (red flags)
• ●Keep statements "clean" for 3+ months before applying

Demonstrate Business Strength:

• ●Strong, growing revenue
• ●Diverse customer base
• ●Positive online reviews
• ●Clear business purpose
• ●Professional presentation

Offer What You Can:

• ●Collateral reduces risk and improves terms
• ●Larger down payment for equipment financing
• ●Personal assets as additional security
• ●Co-signer with better credit (spouse, business partner)

Prepare Your Story: Lenders want to understand:

• ●What happened (why is credit low)?
• ●What changed (why won't it happen again)?
• ●How funds will be used productively
• ●Your plan to repay

A clear narrative about past challenges and current stability helps.

Bad credit doesn't have to be permanent. Here's how to graduate to better terms:

Immediate Actions:

1. ●Take what's available now with best terms for your situation
2. ●Use capital productively to grow revenue
3. ●Make every payment on time (or early)

Short-Term (6-12 Months):

1. ●Build perfect payment history with current funding
2. ●Keep bank statements clean
3. ●Pay down personal credit cards
4. ●Dispute any credit report errors
5. ●Avoid new personal credit problems

Medium-Term (12-24 Months):

1. ●Refinance at better terms based on payment history
2. ●Access additional products as credit improves
3. ●Consider credit builder loans if personal credit still struggling
4. ●Continue growing business revenue

Long-Term (24+ Months):

1. ●Graduate to traditional products (lines of credit, term loans)
2. ●SBA loans become possible with 680+ score
3. ●Bank relationships become viable
4. ●Negotiate from position of strength

Realistic Timeline:

• ●6 months: Better terms with current lender
• ●12 months: New products become available
• ●18 months: Credit score meaningful improvement
• ●24 months: Most products accessible
• ●36 months: Traditional bank products possible