Business owners need a credit score of 620 or higher to have access to a variety of financing options. 550 is the minimum for even basic financing that’s not cost-prohibitive. Business loans may be available for lower scores, but they’ll be short-term and expensive to get.
The Minimum Credit Score Needed for Small Business Loans
Business owners with a minimum credit score of 620 can qualify for any financing option. However, business owners with scores of 550 or higher can still qualify for a short-term loan or line of credit with an online lender. There are many alternative financing options for business owners needing a bad credit business loan.
Lowest Credit Scores Needed for Small Business Loans
Minimum Credit Score
At least 620
Traditional Bank Loans
At least 620
At least 600
At least 600
At least 550
Business Line of Credit
At least 550
Merchant Cash Advance
No minimum requirement
No minimum requirement
No minimum requirement
No minimum requirement
Business Credit Cards
How a Credit Score Works
A personal credit score helps lenders understand and estimate the risk of borrowers before lending. It’s a sign of the creditworthiness of a borrower and combined with other metrics can provide useful insights for lenders. The average credit score of borrowers in the United States is 704, which is enough to get approved for almost any type of financing.
The credit score ranges set by FICO include:
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Excellent: 800 or higher
How a Personal Credit Score Works
A personal credit score considers a borrower’s payment history as the most important factor. It then also weighs how business owners use credit and the length of their credit history to help lenders determine the long-term performance of a borrower. A credit score also considers new credit received by borrowers and the credit mix, with too many new inquiries and low diversity in financing products lowering the score.
Factors that affect a personal credit score include:
- Payment history: If the borrower makes payments on time, with special notes for missed payments, delinquent accounts, and the time that a payment was late.
- Credit utilization: The percentage of total credit that borrowers are using. Around 30% or less is recommended because high utilization shows lenders that borrowers may be at risk.
- Length of credit history: A credit score incorporates the credit history length as the average age of accounts open on a credit report. This means that adding new accounts can bring down the average, making it helpful to maintain financing products long-term.
- New credit: Applying for financing multiple times can be a potential red flag for lenders and reduce a business owner’s credit score. This is because lenders assume that the borrower is a high risk and desperate for funding.
- Credit mix: Having multiple types of debt plays a small role in boosting an individual’s personal credit score. It shows lenders that borrowers can maintain both short-term and long-term commitments like personal credit cards and home mortgages.
Business owners can work to improve their credit scores by shifting their credit mix to other financing options, negotiating increases for existing credit instead of opening new lines and avoiding hard inquiries. However, business owners can have the most impact on their score by lowering their utilization, ensuring they make on-time payments, and checking their credit score often.
How a Business Credit Score Works
Business credit scores provide lenders with a snapshot of the financing history and creditworthiness of a business during the application process. Eight companies maintain a business credit score, and Dun & Bradstreet is the most common one that lenders check. A business credit score considers the same factors as a personal credit score and ranges from 0 to 100 points.
The credit score ranges set by Dun & Bradstreet include:
- High risk of late payment: 0 to 49
- Moderate risk of late payment: 50 to 70
- Low risk of late payment: 80 to 100
There are multiple ways to build business credit, including making payments on time and keeping utilization low. Although many lenders don’t require a business credit score, having one can set a business up for an easier approval process. Business owners can also show that although their personal credit scores may have some issues, their business scores are stellar because they keep the finances separate.
Why Lenders Rely on Credit Scores
Lenders rely on a personal and business credit score for a business loan application because these scores help them estimate the riskiness of the loan. This includes the risk of late payments, delinquent accounts, and default. Some lenders are willing to offer no credit check business loans, but this practice is rare.
What Lenders Also Consider
Besides credit score and credit history, lenders also evaluate time in business, annual revenue, and profitability. These factors help lenders make an approval decision and ensure that the business has substantial earnings and stability to repay any financing. Business owners with poor personal credit scores can expect lenders to put extra emphasis on these other metrics when making an approval decision.
Minimum Credit Scores for Types of Business Loans
Business owners with a range of credit scores have multiple financing options that they can access. Applicants with a credit score of at least 620 can apply for Small Business Administration (SBA) and traditional bank loans, which have low rates and long repayment terms. Equipment financing, personal loans, lines of credit, and short-term loans all have lower requirements. There are also options with no minimum requirements, but business owners can expect higher rates, lower funding amounts, and shorter repayment terms.
SBA Loans: Personal Credit Score Above 620
There are many types of SBA loans that small businesses with credit scores of 620 or higher can take advantage of. Among the most popular are SBA Express loans, which offer borrowers up to $350,000 with an expedited approval process that takes as little as 30 days. Although the credit score for a business loan from the SBA is high, it also offers long repayment terms and low rates.
Traditional Bank Loans: Personal Credit Score Above 620
Bank loans have high minimum requirements because of the long repayment terms and low-interest rates that business owners can qualify for. The high minimum credit score needed for small business loans from the bank is just one requirement. To get a business loan, most business owners also need a business plan, high annual revenue, and a well-established business.
Equipment Financing: Personal Credit Score Above 600
Equipment financing uses equipment as collateral, reducing the requirement for a high credit score for this business loan. However, lenders still take a large risk because no lender wants to end up with equipment and attempt to liquidate it. Many equipment leasing companies can provide funding quickly but have extensive paperwork requirements.
Personal Loans: Personal Credit Score Above 600
Some business owners use a personal loan for business purposes. This is most often the case for startup businesses that don’t have sufficient revenue or business history to qualify for a business loan. These loans are smaller than most business loans, and the best personal loans for businesses offer quick funding and long repayment terms.
Short-term Business Loans: Personal Credit Score Above 550
Short-term business loans provide next-day funding with repayment terms of up to three years, with most financing options extending for a year. The most compared short-term lenders, Kabbage and OnDeck, have low minimum qualifications but have average annual percentage rates (APRs) from 30% to 50%, making them more expensive than more traditional options.
Business Lines of Credit: Personal Credit Score Above 550
A business line of credit is a great financing option for recurring expenses like payroll, inventory, or utilities. The best business lines of credit are revolving, offering borrowers the opportunity to access credit continuously as they pay down previous draws. Minimum qualifications are low, including the minimum credit score for this business loan and APR ranges are like short-term business loans.
Merchant Cash Advance: No Minimum Requirement
A merchant cash advance is an expensive financing option based on credit card receivables that retail businesses and business owners with low credit scores use. Merchant cash advance lenders require daily automatic payments that are a set percentage of credit card sales, reducing the control business owners have and resulting in potential APRs over 100%.
Invoice Financing: No Minimum Requirement
Invoice financing or accounts receivable financing is a way for businesses with outstanding invoices to borrow against their current or future value. Some of the best invoice financing companies don’t have a minimum credit score requirement because they rely on the creditworthiness of a business’s customers to approve it for funding. This makes invoice financing an accessible, inexpensive, and flexible funding option.
Invoice Factoring: No Minimum Requirement
Lenders offer invoice factoring to businesses with outstanding business and government invoices, similar to invoice financing. With invoice factoring, borrowers assign invoices to the lender, and a business’s customers pay the lender instead of the business. The best invoice factoring companies fund business owners with low credit scores because they consider the credit history of a business’s customers a more important aspect of approval.
Microloans: No Minimum Requirement
Microloans offer entrepreneurs and businesses an opportunity to qualify for funding when traditional financing options are not available. There are different microloans, but the best microlenders offer borrowers low rates on up to $50,000 in capital giving small businesses a chance to succeed.
Business Credit Cards: Varying Requirements
Although business credit cards aren’t business loans, they can provide sufficient financing for regular expenses like utilities, office supplies, and fuels. Prime borrowers should apply for one of the best business credit cards available to get the best rewards. However, there are also credit cards for fair credit and secured business credit cards with low minimum requirements.
Example of Getting a Business Loan With Bad Credit
A restaurant owner running a pizzeria on a busy street is looking for financing to repair some outdated equipment and onboard new staff after a recent increase in business. The owner has a personal credit score of 560 and can qualify for an online business line of credit or a short-term business loan.
Both options have an APR that averages from 20% to 50% and repayment terms of only one year. Running a low-margin business, the restaurant owner finds that the rate is unaffordable and that the repayment terms would put a large strain on cash flow. To improve the financing application, the business owner considers getting a co-signer with a higher score.
After some effort, the business owner adds a co-signer with a 650 credit score to the application. Now the business owner can qualify for a traditional or SBA loan to finance the necessary repairs and payroll. The new APR is below 15%, and the repayment terms extend much longer than before. This makes financing the business more affordable and easier to manage.
How to Build and Improve Your Credit Score
There are multiple things that business owners can do to improve their personal credit scores. While it’s good to have a good mix of debt and a long credit history with lenders, most borrowers have little control over this. Instead, business owners can focus on making timely payments, reducing their overall utilization, and checking their credit score for any issues.
How to Get a Business Loan With Bad Credit
Getting bad credit business loans can be challenging, but business owners still have options. Applicants should understand the minimum qualifications for every financing product and select lenders they might qualify with. It’s best to apply when revenue is growing, and the business can use the capital. If a lender rejects the application, business owners should consider a different bad credit business loan or take steps to improve their credit.
Minimum Credit Score Needed for a Small Business Loan Frequently Asked Questions (FAQs)
This article covered the minimum credit score for business loans and addressed some questions that business owners ask about the impact of their score. Credit scores and financing options can be complex and will result in questions we have not answered in this article. If we did not answer a question, we invite business owners to ask them in the Fit Small Business forum.
Do you have to have good credit to get a business loan?
Having good credit when applying for a small business loan isn’t necessary. There are multiple financing options for business owners with bad credit. However, these options have higher rates and shorter repayment terms than traditional loans. Besides your credit score, lenders consider annual revenue and business history when you apply.
Can you start a business with bad credit and no money?
It is possible to start a business with bad credit and no money if the business has low startup costs. Multiple startup funding options include microloans, friends and family funding, and angel investments, which rarely require good credit, collateral, or any existing capital.
Can I get a business loan with a 700 credit score?
Lenders consider business owners with a personal credit score of 700 or higher in the right range to qualify for a business loan. Besides the credit score lenders will also consider the size of the loan request, the revenue, and the profitability of the business when evaluating an application for funding.
Business owners focused on establishing, managing, and improving their personal credit scores will have access to more affordable business loans with longer repayment terms. The best business loans are available for business owners with personal credit scores of 620 or higher. However, there are multiple financing options with low minimum requirements.
Fundbox is one of the best short-term invoice financing options with low minimum qualifications. Business owners can qualify with no minimum credit score and $50,000 in annual revenue to borrow up to $100,000 on a revolving line of credit. Borrowers can complete a Fundbox application in 10 minutes with funding available as soon as the next business day.