How to get a small business loan with bad credit

March 2022

Can't seem to access business funding because of your bad credit score? We can't turn back time, but we can help you move forward in the right direction. Read our guide to match your business with loans and working capital. We’ll also provide you with a step-by-step guide to understand your credit score and how you can improve it. 

What is a FICO score and why is it important? 

Your FICO score, short for Fair Isaac Corporation score is what lenders or funders use to assess your creditworthiness. Depending on your credit record you are given a number to rank your credit performance. This includes how long you’ve had a credit history, how much you currently have in debt, credit available, and if you’ve paid on time or not. FICO scores go from 300 to 850. The highest this number is, the better.

As of 2022, according to FICO the average credit score is 716. If your credit score is lower than 670, then you might have difficulties when it comes to getting access to bank loans or other types of business credit. It certainly increases the probability of it being more expensive as well requiring some sort of personal collateral behind it.

There's no need to feel discouraged. “Bad credit” is more common than most people realize; 1 in 10 taxpayers have a FICO score below 550. Sometimes life gets in the way and your past does not define your present or your future. This is especially true for entrepreneurs.

What are 5 factors that can affect your credit score?

Less stressing and guessing! The best way to dominate and improve your credit score is to understand it! These are the five factors that can cause you to get bad credit, according to the FICO credit model: 

  1. Your payment history (35%): If you've paid back or still haven't paid back loans or credit card payments.

  2.  The amounts you owe (30%):  If you owe large sums on anything from your house mortgage to credit card balance or other debts. 

  3. The length of your credit history (15%): If you haven't been paying back debt or credit or if you still don't have a credit history. 

  4. The amount of different types of credits you own (10%): the more types of credit or loans you have, the more your credit score improves. 

  5. New and recent credit you've applied for (10%): 

You might also have a bad credit score if you've been denied for loans or credit cards or if you have multiple maxed-out credit cards.

How do I know if my credit is good or bad?

If you're still not sure about your credit score number, you should get access to your credit file. This is what lenders, sometimes known as credit detectives use to get background on your creditworthiness. In other words, how much you owe, and if you've been paying your bills on time. You can get one free annual copy of your credit report from Equifax, Experian, and Transunion

As we previously stated, the most common models for lenders to detect if you have bad credit or not is through the FICO and VantageScore systems. FICO Score 8 model goes from 300 to 850.

What the FICO credit score numbers mean:

  • 300-629: Bad or insufficient credit score

  • 630-689: Fair credit. 

  • 690-719: Great credit 

  • 720 or higher: Excellent credit. 

What the VantageScore credit score numbers mean:

  • 300-661: Bad or poor credit score.

  • 601-690: Fair credit. 

  • 691 or higher: Excellent credit.

How to get a business loan with bad credit?

You can do this by applying for alternative business funding or by looking into fast working capital loans for small businesses. Providers typically work fast and online with internally built algorithms that can easily connect your business with a suitable funder in minutes.

Additionally, they usually don’t look at personal credit score as the sole measurement of your creditworthiness. In One Park Financial, we work with a network of funding sources and will help guide you through the funding process.

Here are some of the benefits you can access with One Park Financial:

  • We take a look at the health of your business and we invest in the future of your vision.

  • You run no risk. We give you a seven-day no-cost right to rescission if you decide to cancel.

  • We don't ask for collateral.

  • Payment flexibility. We're not a loan. You'll be able to adjust payments if your business performance modifies.

  • Discounts for early payment: We won't charge you extra if you want to pay early.

  • No Confession of Judgement.

The bottom line

Let’s get to work. The only requirements to pre-qualify are having been in business for at least three months and earning at least $7,500 in gross monthly revenue. So fill out this three-minute pre-qualification form and contact one of our funding experts to find the best option for you and your business. We care about the health of your business.

We care about your vision of growth and we buy into it. We like to think of ourselves as less of a funder and more of a partner. Partners in your business success!

Disclaimer: This material has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. We suggest consulting with your tax, legal, and accounting advisor before engaging in any transaction.