Business funding with bad credit: the honest version

The full guide

What a low credit score changes

Your options. Published minimum scores among funders we track start at 500 for sales-based products such as merchant cash advances and revenue-based financing. Short-term loans tend to start around 550 to 600, lines of credit around 600 to 700, and SBA lenders we track at 640 to 650. Below about 600, the offers you see are likely to be advances rather than loans.

Your price. Funders price by risk. A broker we track says newer, thinner loan files, around a 600 score and 1 year in business, typically price higher and shorter, sometimes at 18% to 35% APR over 12 to 24 months, while strong files see the high single digits to low teens. On advances, a weaker file tends to mean a higher factor and a shorter term.

Your personal risk. Lower scores make a personal guarantee more likely. One lender we track requires an owner guarantee on all its short-term loans. Read what the guarantee covers before you sign. Your personal credit score is 1 input; the next section covers the ones that often carry more weight.

The score counts for less on an advance because of what the funder is buying. It is repaid from your future receipts, not from your personal finances, so the funder cares most about whether those receipts keep coming. Your score still shows how you have handled obligations, which is why it affects price even when it does not decide the yes.

What matters more for sales-based funding

A funder buying your future receipts wants to know those receipts will keep arriving. It reads your statements for:

• Deposits. The level and steadiness of monthly deposits set how much you can get. A funder we track sizes advances at up to 125% of average monthly volume.
• NSFs. Bounced items show the account cannot cover what is already scheduled. See NSF in our glossary.
• Negative days. Days the balance ends below zero. One funder we track declines files with more than 3 negative days a month.
• Existing positions. Current advances and their daily debits. The same funder accepts no more than 4 existing positions.
• Liens and bankruptcies. That funder also excludes open bankruptcies and tax liens over $150,000. A lender we track caps tax liens and judgments at $175,000 and excludes open or dismissed bankruptcies from the last 24 months.

Read your own statements the way a funder will before you apply. Count the NSFs and negative days in the last 4 months, note your lowest balances, and separate true sales deposits from transfers between your own accounts or loan proceeds, which funders will not count as revenue. If the last 30 days look worse than the 3 months before, a short wait with clean activity can improve the offer. Our guide to how MCA underwriting works explains how funders turn these into an offer.

Realistic options with a low score

Sales-based products

Several funders we track publish 500 as their minimum for these products, and some use a soft credit pull at application. They cost more than loans, so compare the dollar cost of every offer. Revenue-based financing explains how the payments follow sales.

Asset-backed products

With equipment financing, the machine secures the deal; one lender we track says a low score is not an automatic rejection because the equipment serves as collateral. With invoice factoring, your customers' credit matters most, and one factor we track sets no minimum credit score. Asset-based lenders focus on what your receivables, inventory or property are worth.

A smaller amount than offered

You do not have to take the full amount a funder approves. A smaller advance means a smaller debit, less total cost and a better chance of finishing on schedule, and a completed advance with no missed payments is the kind of record that helps on your next application.

What bad credit costs in dollars

The gap is $3,000 on a $20,000 advance, and the weaker file also carries 147 daily debits instead of 39 weekly ones. Those debits leave less room in a slow week, which makes the next NSF more likely. Take the smaller amount if it covers the need.

What moves you from the first offer to the second is mostly in your bank statements: steadier deposits, no bounced items and fewer existing debits. The offer decoder shows the full cost of any offer, and our guide on business funding with bad credit covers how to build a stronger file over 3 to 6 months.

Red flags aimed at owners with bad credit

Be wary of pitches built on “no credit check,” “guaranteed approval” or “instant approval.” The FTC lists “Bad credit? No problem” as a sign of an advance-fee loan scam and notes that legitimate lenders check credit reports and application details before they offer credit. A soft credit pull at application is normal; no check at all, combined with an upfront fee, is not.

• A fee for “insurance,” “processing” or “paperwork” before you receive any money.
• Approval promised before anyone has seen your bank statements.
• Pressure to sign today, or a contract that differs from what the salesperson said.
• A confession of judgment you were told not to worry about.

In 2022 the FTC settled with RCG Advances over allegations that it told owners no personal guarantee was required, then used guarantees and confessions of judgment to seize assets. The FTC also suggests checking with your state attorney general whether a lender is registered and searching online for complaints before you share financial details. Our red flags guide lists more. Openbook charges no fee to apply and no upfront fee, reviews every credit profile, and names every funder before submitting your file.

Pros and cons