Small Business Financing Options For Those With Not So Great Credit

If you are an entrepreneur or small business owner who does not have good personal credit but you need a small business loan of some kind to start, build, or grow your business then there’s good and bad news for you.

We’re really not here to talk about the bad news because you already know the bad news.  It’s tough – some would say impossible – to get financing when your personal credit is “not so great.”  After all, it’s been tough enough since The Great Recession for people with “good” credit to get financing.

bad credit financing

Just to clarify, we’re talking about debt financing and not equity financing.  This post will not cover equity financing options such as venture capital, private equity, angel investors, or the three F’s (friends/family/fools).

Before we get started, let’s review a couple important truths:

  • One is that your personal credit is either an asset or a liability.  It’s not neutral because, if you’re like most of us, you’ll want or need credit to do things like buy homes, obtain credit cards, get business financing, etc.  Your credit is not neutral, it’s either an asset or a liability.  If it’s an asset then keep it that way and if it’s a liability then don’t be guilty of the definition of insanity and continue doing the same things you’ve always done and then expect different results.  Do something about it.
  • Two, you may want to consider an ownership strategy if you are married and your spouse has better credit than you.  More about husband & wife “insider” tips here.

Now, let’s dive into the best small business financing options for people with “not so great” credit:

ROB’s (Rollover as Business Startups)

This works for both new and established businesses.  If you have an IRA, 401k, or other qualified retirement vehicle then you may be able to roll some or all of those funds into your new business entity.  You’ll need a C-corp and this strategy should only be executed by a qualified and experienced company or attorney.  There are no monthly payment requirements but be sure you have good people who properly set this up for you so you don’t run into IRS compliance issues.

Equipment Financing

This works for both new and established businesses.  You’re looking for a non-bank equipment finance company here.  There are many of them out there who will lend you the funds you need to buy construction equipment, medical equipment, tractor trailers, aircraft, printing equipment, etc.  The list goes on.  They look for clients with damaged credit and what you’ll need in return is very simple.  You either need a larger down payment or collateral or both.

These lenders like to lend based on the “auction value” of the equipment you’re buying and/or the auction value of some equipment you already own.  Although it goes without saying, you should expect to pay a higher cost for these loans.


This works for established businesses only.  It’s simple here too.  If you have an aging report or book of receivables then there are lenders out there who will buy your receivables at a discount (some or all of your receivables).

Qualifying for factoring is all about the company who owes you the money.  If the lender believes they will pay, then you’ll probably get your financing.  However, if it’s Uncle Louie from Louie, Inc. who owes you $100,000 you probably won’t be able to finance that one.  I’m sure you get the idea.

The lender will check things like business credit reports on the company who owes your invoice(s), make verification phone calls, etc. but it’s a quick solution and there are thousands of businesses all over the country who do this very successfully.

Merchant Cash Advances

Also known as MCA’s, works for established businesses only.  This is probably one of my least-favorite forms of financing because it’s so expensive but there is a time and a place for it.

We’re talking about the Wild West of financing here though.  If you’re working with a trusted small business loan professional then you’re probably okay but these loans are a dangerous combination of two things – they are costly to the business owner and lucrative to the brokers who sell them.  They are tough on cash flow no matter how you slice it but if you can absorb the high-cost and the short repayment term and advance your organization then this is an option.

To give you some perspective, our company takes in around 5,000 requests for financing per year and in the last 2 years, you can count the number of MCA’s we’ve done in the single digits.  For each of those clients it was a means to an end to achieve a larger goal.  They’re an option, but use them wisely.

Purchase Order Financing

Also known as PO Financing, works for established businesses only.  Of these five lending solutions this one is done with the least frequency.  However, it’s a great option when you have a large order you need to fulfill from a large customer.

For example, if Target gives you an order for 500,000 of your widgets to go in all their stores on the east coast, then you’ll need to manufacture and ship those widgets to them before they ever pay you.  You will also need to pay all your people or the manufacturer for the production.  That can get expensive and many business owners have had their growth halted simply because they couldn’t afford to fulfill a big order.

With PO Financing, as long as you have a credit-worthy buyer, you can finance that entire order and ensure that your business grows and that you can develop the relationship with the buyer for future orders.

And there you have it.  These are not the “only” ways to obtain financing if you are a small business owner with damaged personal credit, but these are likely your best options – or they are at least the most commonly used financing vehicles for people with “not so great” credit. The list could certainly be longer.

So how have you creatively financed your business growth?

Credit Problems Photo via Shutterstock


Tom Gazaway Tom Gazaway is Founder and President of LenCred. His expertise is in helping small business owners who are in the first two years of business to properly obtain business financing that separates their personal and business credit while also protecting, preserving, and improving their credit profiles. Tom blogs on the LenCred blog, The Business Finance Lounge.

22 Reactions
  1. This a great post, Tom. I’m glad to see that there several options for small businesses to get financial assistance, even if they have credit problems. Sometimes, all you need is for someone to give you a chance. Thanks for sharing this info with the community.


  2. You’re welcome Ti. Thanks for your input!

  3. I love this post. Just one more thing….What about those of us who have bad credit, or not so good, and we don’t have access to a “bigger down payment,” or even collateral? I, for instance, am needing a step up, not a handout. Without putting it all out there, I have a history that left me with a poor credit report and am a victim of the unemployment rise. Is there help for people like me?

  4. Hi Meshallie,
    Thanks for your comments. It’s obviously always harder for people with damaged credit to find financing but you can explore the options we discussed or go with a credit partner who has better credit. I also suggest you find the local SBDC’s in your area and a micro lender like Accion. Thanks again for your comments Meshallie.

  5. Great article Tom. I’ve been in the industry of business finance for over ten years and have seen a large number of people that have been declined at the bank and was able to help them get funded. Sometimes its by a bank in another part of the country or the next state over. As a broker I have the ability to bring the two parties together and I never charge upfront fees. If anyone offers to help you and asks for money upfront then run away.

  6. Thanks Steve. I totally understand the “wrong bank” part of your scenario but this was largely written for people who are not at all in a bankable position and going to a different bank would not get them their financing. I think I kind-of agree with your comments about up-front fees but I might say it slightly differently. Certain fees like credit report costs and other minimal fees are normal and acceptable but if there are up front fees and they are anything more than minor I would agree to tread cautiously!

  7. As an employee of an invoice financing company, I love reading articles that highlight the alternative financing options available to small businesses. As you mentioned, bank loans are not the end of the line when it comes to business funding. It’s important for small businesses to keep in mind that alternative financing companies will still review most of the same financial documentation as banks before lending money. A small business owner should approach applying for any kind of financing with their financials, tax statements, and business plan organized and ready for review.

  8. Thanks Mariah…great feedback. It’s important for people to realize that “alternative lending” is a viable option for people in the right situation. For most business owners the additional cost should normally be a non-issue for two reasons. One, when business owners don’t have the other qualifications necessary to get lower-cost bank financing then they should expect a higher cost solution. Two, as long as you’re not in an extremely low-margin business then if you have a plan and are confident in carrying it out then the cost of the alternative financing should be quite easy to justify. If you’re working off a 5% margin then there’s probably no kind of loan that would ever be justified and you’ve likely got an issue with your business model more than with the cost of financing. Thanks again for your thoughts Mariah!

  9. Before a business can apply and receive any kind of financing it’s important to prepare a cash flow projection to help explain just how the funds will be used. If applying for a loan, the bank will want to know how the loan will be paid back. Your cash flow projection will detail this out and provide the necessary information the bank needs to make their decision.

  10. Thanks Kirsten. I totally agree. The only caveat to that is that some forms of financing don’t have those kinds of requirements (such as credit cards which are the most popular form of financing for small biz owners). With these kinds of financing it’s important to remember that even though the cash-flow projections aren’t required for the lender that doesn’t mean you shouldn’t do them or that they are any less valuable. Thanks Kristen!

  11. Great job Tom. Many small business owners, especially new/young companies need capital raising guidance. They are experts in their field and seldom experienced at funding a business. As the owner of we often work with new businesses. The quality of the transaction opportunity is more important than documentation. As you mentioned, the credit quality of the buyer is most important. The simplicity of goods manufacturing or procurement is also important.

    • Thanks for your input Dan. Of course we couldn’t go into great detail about the PO options but I’m glad you like the content.

  12. Another method to help grow a business when you’re short of cash…..barter your goods/services for advertising, marketing, printing, etc
    I help small businesses to pay for many expenses by trading some of their inventory or a voucher for future services. I then resell these to other businesses. This can be done in most major centres across USA & Canada.

  13. Thanks Gord. Things like bartering, trade credit, selling collectibles, and a variety of other options belong on the “long list” of options. Thanks again for your input.

  14. Having this kind of information readily available is encouraging and enables one not to give up hope. Thanks

  15. I think a MCA is fairly instant and a lot of the time instant is what a business is after in times of need. The cash advance will also stay off credit reports which is an attractive advantage. Agreed though, use wisely. Nice post.

  16. Thanks Colin.

  17. Randy Mitchelson

    Is there a common trade association that alternative small business financing companies tend to belong to? I help do advertising for an alternative merchant line of credit provider. They can help other lenders find a home for their turndowns that do not fit their internal underwriting or other approval criteria.

    • Hi Randy, there are a variety of different commercial finance trade associations out there. Most have their own groups on LinkedIn or you could find them through some basic google searches too. Thanks Randy.

  18. I searching still for the right financial fit for my situation, I’m paying back the state of cal, retirement-repayment, plus husband put one of my loans in low interest, which is working out great, I at this crossing trying to find the fund to pay off my debt, so I can finally take off in my home base business, I am fully licensed, I have excellent credit my personal debt is 31 thousand. and I only need minimal cash for business.

  19. Here’s another option for small business owners to get their hands on capital, even with bad credit. There’s a very small number of loans companies that offer performance based loans. All the business owners needs is a track record of generating revenue. Bad credit scores are not a deal breaker, and the process is fast. very fast in comparison to traditional lenders. lists a company that is looking out for the small business owner by providing them with bad credit business loans.

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