Business funding with bad credit: realistic options and costs

Bad credit changes the question funders ask. With a strong score, the conversation starts with your history. With a weak one, it starts with your revenue, your customers or the equipment you are buying. That points you toward some products and away from others, and it changes what the money costs.

What a low score changes

For most revenue-based funding, the score that matters is the owner's personal score. Revenue-based funders weigh your bank statements more heavily: at the FTC's 2019 forum on small business financing, one funder's general counsel said it pulls the owner's personal credit but gives it less weight than the business's cash flow.

What a low score usually costs you is choice. Fewer funders will look at the file, terms get shorter, prices go up and collateral matters more. Openbook Capital reviews every credit profile, and most funders it works with look for a personal score of 500 or more.

Realistic options by product

See our page on bad credit business funding for how Openbook approaches these files, and our invoice factoring page if most of your sales are invoices to other businesses.

The cost trade-off in dollars

Fees change the math too. If Offer 2 came with a $1,000 fee taken out of the funding, you would receive $29,000, pay back the same $39,000, and the cost would rise to $10,000 with an estimated APR of about 124%. Always compare the amount that will actually land in your account.

Put any offer through our Offer decoder to see its total payback, cost in dollars, payment and estimated APR side by side with the others.

SBA and other lender-based options

SBA's own loans page says: “Even those with bad credit may qualify for startup funding.” For its main 7(a) program, SBA says a business must be creditworthy and able to repay, and must be unable to get the credit on reasonable terms from non-government sources. You apply through a participating lender, not through SBA itself, and SBA's Lender Match tool can connect you with one.

Expect more paperwork and more time than a revenue-based advance. In exchange, the price can be far lower: SBA caps the variable rates lenders can charge on 7(a) loans at the base rate plus 3.0% to 6.5%, depending on loan size, and terms generally run up to 10 years, or up to 25 years for real estate. That is worth checking before you accept a short-term offer.

Questions to ask when your credit is weak

• Do you check credit, and is it a soft pull or a hard pull?
• Do you publish a minimum score, and what else carries the decision?
• What are the total payback, the cost in dollars and the estimated APR?
• Is any fee due before funding, and what comes out of the funding itself?
• Is there a personal guaranty, and does it cover performance or payment?
• Is there a confession of judgment in the contract?
• What happens to my payments if sales drop?

How to improve your terms

• Build a few clean months. No negative days and no returned items change how a statement reads faster than a score moves. Our guide to MCA underwriting explains what funders check.
• Pay down or pay off an open advance, and get its UCC filing terminated.
• Reach the next time-in-business mark. Big Think Capital, for example, says 24 or more months in business brings better equipment terms.
• Offer collateral or a down payment where the product allows it.
• Borrow less. A smaller amount means a smaller debit and less at stake.
• Check your credit reports. The FTC says you can check your report from each of the 3 nationwide bureaus once a week for free at AnnualCreditReport.com. Dispute errors with the bureau and with the business that reported them.

If a lender turns down an application for a loan or line of credit, ask why. Under the federal Equal Credit Opportunity Act's Regulation B, a creditor must tell a business with revenue of $1 million or less what it decided and either give the reasons or explain how to request them. This is general information, not legal advice, and a merchant cash advance may be treated differently because it is structured as a purchase rather than credit.

Red flags aimed at bad-credit owners

The FTC's guidance on advance-fee loan scams lists the pattern: pitches like “Bad credit? No problem,” guarantees of approval, fees demanded before you get any money, unexpected calls offering credit, requests to pay by wire, gift card or cryptocurrency, and lenders that are not registered in your state. Its summary is blunt: “No one legitimate will ever ask you to pay for a promise.”

Legitimate funders verify your application, and that usually includes your credit. Some use a soft credit pull, which is still a credit check but does not affect your score; Merit Business Funding, for example, says its checks are soft pulls through the major bureaus. Our red flags guide covers the rest.

The costliest quick fixes

• A second advance to make the first one's payments. It adds a fixed debit to deposits that were already stretched.
• Paying anyone before you are funded. The FTC's advance-fee warning is written for consumers, and it fits business funding just as well.
• Signing a confession of judgment because it was the only offer on the table that day.
• Taking the first offer without comparing it. The difference between a factor rate of 1.45 and 1.30 on $30,000 is $4,500.
• Blocking debits later when the payments pinch. That can be a contract default, with fees of its own.

Where Openbook fits

You can apply online in about 3 minutes. There is no SSN and no bank login at that step, so it does not affect your credit. Openbook can usually help businesses with 6 or more months in business, $10,000 or more in average monthly deposits and a U.S. business checking account.

A funding specialist reviews your application and asks for 4 months of business bank statements. Openbook then matches the file to funders whose published criteria fit and names every funder before submitting. When offers come back, we decode each one side by side, and you choose one or walk away with no obligation.

Funders make every credit decision and set every price, and no one can promise an approval. Sometimes the best offer is the one you get after 3 more months of clean statements, and the numbers will show you when that is the case.