If you have limited or poor credit, then considering a business line of credit for bad credit could be a smart move—either on its own or coupled with another small business loan.
A business credit line can give you easy access to working capital that you can use to cover your business’s expenses.
What if you have a less-than-desirable credit score? Can you still get a business line of credit for bad credit?
Fortunately, there are still options you can consider if you’re looking for a business line of credit for bad credit.
If you’re totally lost right now: don’t worry, we’ll break this all down below.
Before we dive into the best business line of credit for bad credit, let’s make sure you understand what constitutes “bad credit.”
A credit score, as you might know, is a mark of your reliability. Specifically, it is a number, generated from various factors, that determines how likely you are to pay your bills on time.
Factors that affect your credit score are:
What is classified as “bad credit” can vary, and lenders will evaluate credit in conjunction with your other business attributes—like revenue or time in business.
Typically, if you have a credit score of 620 or below, it will be more difficult to qualify for long-term loans or an SBA loan—but maybe not impossible. Plus, you still have a good chance of qualifying for a short-term loan or business line of credit.
Having bad credit is a pain. It can hinder you from getting financing for your business needs. Having good credit means you have more options and better rates.
The lower the score, the more you will need to shine in other areas to qualify for a business line of credit. But don’t despair—when it comes to business line of credit for bad credit, you have options.
First, let’s make sure you understand the difference between business credit and personal credit.
If you own a business, you have two credit scores: a business credit score and a personal credit score.
This is why it’s important to keep your personal and business finances separate.
There are a few companies that calculate these scores.
For businesses, it’s Experian, Equifax, and Dun & Bradstreet.
For your personal score, it’s Experian, Equifax, and TransUnion.
You can obtain your scores from these company websites, or through sites like FreeCreditReport.com.
Lenders will look at both of these to determine eligibility.
A business line of credit is flexible, revolving capital—similar to a credit card—except you get access to cash and, in many cases, lower APRs. And there are many business line of credit for bad credit options available.
Lines of credit are agreements between lenders and borrowers that give a maximum loan balance that the borrower can pull funds from. With a line of credit, you can borrow funds at any time as long as you don’t exceed the maximum amount. Plus, you only have to pay interest on the funds you draw.
A business line of credit gives you capital to meet a variety of needs for your business—like covering payroll, buying inventory, and handling seasonal cash flow gaps. A business line of credit will give you easy access to cover day-to-day cash flow needs.
Plenty of financing options are out there—even if you have poor credit, including short-term loans and merchant cash advances, among others.
But here are the reasons a business line of credit might be a good option for you.
If you need access to capital sooner than later, and don’t have time to work on raising your credit score, there’s still hope.
To obtain a line of credit, you will probably need to supply some financial information about your business as well as yourself, so be prepared with income and other statements or tax returns.
Fortunately, it’s not just about your credit score. There are other factors of your business that matter to lenders.
One of the most important parts of your application is your business’s annual revenue.
The more you bring in, the better.
That should come as no surprise. A high revenue proves to lenders that you know what you’re doing—and that your business is a worthwhile investment for them to make.
Generally speaking, the line of credit you’ll qualify for will be around 8%-12% of your annual revenue.
Many online lenders require minimum annual revenue amounts ranging from $25,000-$500,000.
If you’re currently paying back a business loan, you might have trouble qualifying for a second product, even a business line of credit for bad credit.
Most lenders don’t want to take what’s called “second position” to another lender.
In other words, if you go bankrupt and your assets get liquidated, that original lender will be compensated for your remaining debt, leaving a second lender in a tricky position.
If a lender took second position to someone else, it means they wouldn’t get their money until the lender in first position is completely paid back.
With that in mind, if you don’t have any other debt obligation at this time, this will be a good sign to lenders.
Lenders want to know how well you manage your cash flow—and how much cash you tend to keep on hand.
Every lender’s main concern is whether you’ll be able to make their loan payments, so 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.
However, if you have a history of NSFs (non-sufficient funds), you might want to wait a few months before applying for a line of credit. Use that extra time to carefully manage your bank account, making sure it looks 100% lender-friendly.
No matter what, be prepared to talk through your financial history if you know these factors can be found on your credit report.
If you have good credit, the first place you would probably go as a source for a credit line would be your own bank. Unfortunately, if you have bad credit, this is likely not an option.
Fortunately, you still have many sources for small business line of credit for bad credit. To find the perfect fit and absolute best terms, you should plan to comparison shop among several lenders.
Below are some of the best options to consider from online lenders if you have bad credit.
Headway Capital offers a line of credit up to $50,000 in revolving funds for small business owners. One of the benefits is that you can choose between monthly or weekly payment options and terms up to 24 months with no early pay-off fees.
Headway Capital is one of the easiest business line of credit for bad credit to qualify for online. They have a quick application, simple document requests, and can get an answer to you in an under a week.
They also have some of the least stringent eligibility requirements to boot:
If you’re running a young business that’s still building up your credit and revenue, Headway Capital is a good option to get access to capital for times when your business might need it unexpectedly.
However, since Headway Capital is the easiest to qualify for, they also have the highest interest rates and lowest loan amounts.
Headway Capital provides:
If you can qualify for something better, it’s definitely better to go that route. But if you can’t and really need the cash, Headway Capital is your best bet for a business line of credit for bad credit.
Fundbox provides invoice financing that acts like a line of credit.
It’s one of the easiest financing options to qualify for. Here’s what you need to qualify for a Fundbox line of credit:
Fundbox does not require personal credit to get started. Instead, they use a custom-built business health assessment to determine your credit eligibility and limit by reviewing the data you share with them.
You only need to connect Fundbox to your business bank account—nothing else.
When you keep your Fundbox account connected, you’ll know what invoices are eligible for advances. When you need the cash, you can clear an invoice and pay it back over the 12 weeks or even earlier if you want—and save on the fees.
Here’s what a Fundbox line of credit will get you:
If you have a lot of unpaid invoices disrupting your short-term cash flow, Fundbox might be a good business line of credit for bad credit option for you.
Kabbage is a good option if your business is more established. So perhaps not the best business line of credit for bad credit option, but a good one if you can qualify.
Like Fundbox, Kabbage lets business owners link up their online financial services, including Intuit QuickBooks, business checking accounts, and Square. Kabbage determines financial performance by analyzing real-time metrics like average monthly revenue, seller rating, and transaction volume.
Kabbage also uses their “nontraditional” metrics to determine the amount of cash that can be made available to you, including an active and robust social media following.
All of this information is plugged into Kabbage’s underwriting platform, which provides an automated decision within minutes.
Here’s what’s required at a minimum:
This makes Kabbage a good option if you’ve been in business for awhile but still have bad credit. If you do qualify, this is what a Kabbage line of credit can get you:
The only reason you wouldn’t apply for a Kabbage line of credit is if you can qualify for something with a better rate.
A bad credit score might create problems when you try to secure funds for your business, but there are still plenty of business line of credit for bad credit options. You just need to understand your needs and look for options that meet your requirements.
You might get higher rates than other options, but if you really need the cash and don’t qualify for anything else, these options are your best bet.