If you have bad personal credit and are looking for financing for your business, you probably know that your options are limited. After all, when it comes to most business loans, lines of credit, and other types of financing, lenders first and foremost will consider your credit score to determine if you qualify.
This being said, however, with the emergence of online, alternative lenders, there are now more solutions than ever for business owners with bad credit. So, if you need working capital or simply flexible access to financing, you might consider a business line of credit for bad credit.
With a line of credit, you can receive sustained access to revolving credit and draw upon it to cover your business’s running expenses.
In this guide, therefore, we’ll break down four of the best options for business lines of credit for bad credit. We’ll also explain how to qualify for these credit lines, as well as discuss how to decide if a line of credit for bad credit is right for you.
Best Business Lines of Credit for Bad Credit
Generally, if you had good credit, the first place you would look for a credit line would be a bank—banks will be able to offer the most desirable rates and terms for business lines of credit or any other type of business loan.
This being said, however, even if you have good credit, bank loans can be difficult for small business owners to qualify for, and even more so if you have bad credit. Therefore, all of the top business lines of credit for bad credit will come from online, alternative lenders.
Let’s learn more.
Headway Capital offers a line of credit up to $100,000 in revolving funds for small business owners. One of the benefits of Headway Capital’s line of credit is that they allow you to choose between a monthly or weekly payment schedule and offer terms of 12, 18 or 24 months with no prepayment penalty fees.
Additionally, Headway Capital is one of the easiest business lines of credit for bad credit to qualify for online. Their application is quick and easy, requires limited documentation, and they can fund your line of credit as fast as one business day.
Plus, Headway Capital has extremely flexible eligibility requirements—making their line of credit product accessible to a variety of business owners including those with bad credit. To qualify, you’ll need a minimum annual revenue of $50,000, a personal credit score of 560, and a minimum of six months in business. This time in business requirement is particularly notable as it opens up financing to young businesses that are still building up credit and revenue.
All of this being said, because Headway Capital offers lines of credit to bad credit borrowers, they also have high-interest rates (40% to 80% APR). Plus, on top of the interest, you’ll incur on the funds you draw, it’s important to note that Headway Capital also charges a withdrawal fee of 2% each time you access your credit line.
Ultimately, as with most business lines of credit (and other products) for bad credit, Headway Capital’s credit line will be expensive, but highly accessible if you can’t qualify for more affordable solutions.
Next, you might also consider Fundbox if you’re looking for the best business line of credit for bad credit.
With Fundbox, you can access a revolving line of credit in amounts ranging from $1,000 to $100,000 with terms of 12 or 24 weeks. Interest rates on Fundbox lines of credit start as low as 4.66% of the draw amount.
To qualify for this bad credit line of credit, you’ll need a minimum 500 personal credit score, at least three months in business, and an annual revenue minimum of $25,000. Overall, these are extremely flexible requirements, allowing new businesses, startups, and business owners with bad credit access a line of credit.
This being said, one of the biggest benefits of Fundbox is their application process. All you have to do is sign up for an account, connect your business bank account or accounting software, and FundBox will evaluate your eligibility based on this information. You should be able to have a credit decision in a few minutes after signing up and will be able to access your funds as soon as the next business day.
Moreover, it’s worth mentioning that Fundbox requires weekly payments to repay the funds you draw on your credit line, however, they waive all remaining fees if you pay your debt back early. Plus, if you’re applying for a credit line in a smaller amount, Fundbox will not require a personal guarantee.
All in all, Fundbox can offer one of the fastest application process and most lenient requirements of any line of credit provider on the market. Therefore, if you need access to a business line of credit for bad credit quickly and easily, Fundbox is a worthwhile solution.
Finally, although not quite the same as the options we’ve discussed thus far, you might also consider business credit cards if you’re looking for a business line of credit for bad credit.
Ultimately, even though credit cards and lines of credit are not exactly the same, they operate on much of the same principle. Therefore, if you need access to a line of credit for everyday business expenses or working capital, especially if you’re a newer business, it may be worth exploring your business credit card options.
In fact, there are a variety of business credit cards for bad credit, including, for example, the Capital One Spark Classic, which actually allows you to earn while you spend.
With this business credit card, you only need a 580 personal credit score to qualify and you can apply quickly and easily online. This credit card has no annual fee and will earn 1% cash back on all spending. In this way, the Spark Classic is not only great for access to working capital, but it’s also a useful tool for building and improving both your personal and business credit scores.
On the other hand, if you can’t qualify for the Capital One Spark Classic, you might explore alternative secured credit cards, like the Wells Fargo or Capital One secured cards—which give you access to a credit line that you back with a security deposit upfront. Although your access to funds on these cards will be tied to your deposit, these secured cards are worthwhile options for business owners who need to improve their credit before they can qualify for other financing solutions.
Now that we’ve reviewed some of the top options for business lines of credit for bad credit, you may be wondering how to qualify for one of these products.
Ultimately, one of the best actions you can take, first and foremost, 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 one of these lenders, and actually use this product responsibly to improve your credit history.
Therefore, to obtain a line of credit, you’ll need to supply financial information about you and your business. As we’ve discussed, the specific requirements and process will depend on the lender you’re working with. Overall, however, this information will be even more important to your application as it is what the lender will use (in addition to your credit score) to evaluate your application and whether you qualify for their line of credit product.
This being said, here are some factors to keep in mind when preparing to apply for a bad credit line of credit:
One of the most important parts of your line of credit application will be 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.
Ultimately, a high revenue proves to lenders that your business takes in enough to pay back any capital you might draw from your credit line.
Generally speaking, the line of credit you’ll qualify for will be around 8% to 12% of your annual revenue.
As we’ve seen, many online lenders require minimum annual revenue amounts from $25,000 and higher.
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.
Essentially, 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, if you don’t have any other debt obligation at this time, this will be a good sign to lenders. However, if you do have existing debt and are looking for financing options, you might instead look to refinance your existing loan or opt for a business debt consolidation loan.
When you’re applying for a line of credit, especially with a bad credit history, 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.
This being said, 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, as many lenders won’t accept business owners with NSFs on their account within recent history.
As we’ve mentioned, although it is more difficult to find and qualify for business financing if you have bad credit, alternative, online lenders have significantly improved the options for business owners with less-than-ideal qualifications.
This being said then, you might be wondering if other financing products, like a short-term loan or merchant cash advance, will be better for your business than a line of credit.
Ultimately, it will be up to you to decide which product is best based on your business’s needs—however, here are a few reasons why a bad credit line of credit might be the right solution for you:
At the end of the day, a bad credit score might create problems when you try to secure funds for your business, but there are still plenty of business lines of credit for bad credit borrowers out there. As we’ve discussed, to access a credit line, you’ll have to understand your needs and limitations and look for options that meet your requirements.
Ultimately, with any of the options on our list—Fundbox or Headway Capital—you may find higher interest rates than other products on the market, however, if you need access to business financing quickly, these lenders will provide your best course of action.
On the other hand, of course, 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.
Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.