Can I Get a Large Business Loan With a Bad Credit Score?

Getting a large business loan comes with a lot of requirements – from providing your business’ financial statements to preparing a strong business plan that outlines your company’s strategy. 

Showing a good debt-to-income ratio, preparing all legal documents, and backing the loan with collateral are other requirements that lenders will ask of you if you are looking to get additional funding for your business.

However, among the most important ones is your credit score; it determines whether you are creditworthy, which essentially translates to your ability to repay the loan without the risk of defaulting. But what happens if your credit score is bad? Can you still get a large loan?

In this article, we will discuss everything you need to know about getting a large business loan with a bad credit score. So, let’s get right into it:

What Is a Good Credit Score for Getting a Large Business Loan?

In order to answer the question, “Can I get a large business loan with a bad credit score?” it is important to dive deeper into the concept of a credit score and understand what it means to be good or bad.

The first thing you will need to understand is that there is a difference between a personal credit score and a business credit score. 

You may think that a business credit score is the only thing that matters when applying for a large loan, but that’s not the case. Lenders will also look into your personal score, as well as the one of all your company co-owners (if you have any).

This applies especially to small businesses and startups, where the risk of defaulting is higher. If the co-owners hold a significant percentage of the business—usually 20% or more—they can expect their personal credit history to be part of the creditworthiness assessment.

So, in order to determine if you can get a large business loan with a bad credit score, let’s separate both cases:

Business credit score

Business credit scores may vary across different credit bureaus – the most important ones being Dun & Bradstreet, Experian, and Equifax. 

The higher your credit score is, the more likely you are to get approved for your business loan, especially if you are applying for a higher funding amount. It also means that you are more likely to get lower interest rates and better terms compared with lower scores.

Now, let’s take a look at the personal credit score requirements for evaluating whether you can get a large business loan with a bad credit score:

Personal credit score

When it comes to personal credit scores, lenders generally take into account the FICO Scoring Model to assess an individual’s creditworthiness for a loan. These are the general guidelines:

• Bad: Below 580
• Fair: Between 580 and 669
• Good: Between 670 and 739
• Very good: Between 740 and 799
• Exceptional: 800 or above

Just like business credit scores, personal credit scores indicate whether the borrower has a higher or lower risk of defaulting. Lower risk means more favorable rates and terms, while higher risk is associated with worse rates and terms.

What Is the Impact of Bad Credit on Loan Approval?

Bad credit significantly impacts loan approval, as lenders view bad credit as a higher risk – suggesting a borrower may struggle to make timely repayments. Some of the additional implications include:

• Higher interest rates – lenders may charge higher rates to offset the risk of default.
• Loan denial – bad credit can lead to outright rejection of the loan application.
• Stricter terms – terms may be more stringent, including shorter repayment periods.
• Required collateral – lenders might require collateral as security against the loan.
• Smaller loan amounts – the amount approved may be less than requested.
• Additional guarantees – lenders may require a cosigner with better credit.
• Limited lender options – fewer lenders may be willing to consider the application.

These implications are very important to keep in mind when it comes to getting a large business loan with a bad credit score.

Can I Get a Large Business Loan With a Bad Credit Score?

Yes, it is possible to get a large business loan with a bad credit score. However, it can be significantly more challenging and you may face higher interest rates, worse terms, and lower limits. You may also need to provide a collateral or a guarantor. 

Exploring private credit services, like those offered through National Business Capital’s diverse lender platform, and demonstrating strong business fundamentals can improve your chances. 

Generally, online lenders are more likely to give you a large business loan with a bad credit score than traditional banks because they have more flexible lending criteria, more efficient processes, and use innovative risk assessments. 

Lenders such as NBC use advanced algorithms to assess risk, allowing them to consider a broader range of factors beyond just credit scores, such as real-time income and the business’s online reputation.

How Can I Improve My Bad Business Credit Score?

While getting a large business loan with a bad credit score is possible, improving your credit score is highly recommended if you are looking to score better terms and rates. Here are a few things that you can do to get your score up:

• Review your credit reports

Make sure to regularly check your credit reports from the major business credit bureaus – Experian, Equifax and Dun & Bradstreet. Look for inaccuracies, outdoor entries and discrepancies that could be impacting your credit score negatively.

If you find inaccuracies, we highly recommend disputing them with the respective credit card bureau. You might also want to check your personal credit reports if you’re a sole proprietor or if personal credit plays a role in your business financing.

• Pay bills on time

Payment history is a critical factor in your credit score calculation, which means that paying your bills on time is essential as they hurt your credit score. Ensure you pay all business obligations, including loans, credit cards, and supplier invoices, on time.

Setting up reminders and automatic payments can be extremely helpful in avoiding late payments. If cash flow is tight, prioritize payments that affect your credit score most significantly.

• Reduce your level of debt

Having a high Debt-to-Income ratio (DTI) can have a huge negative impact if you are trying to get a large business loan with a bad credit score. Ideally, you should keep it below 35% if you are looking to get better terms and conditions.

On another hand, a Debt-to-Income ratio of 36% to 49% is considered manageable, but you may not get good terms and conditions. If your DTI is higher than 50%, it signals to lenders that you are in financial distress, and you are considered a risky borrower. 

If your DTI is higher than what lenders find acceptable, there are a few things that you can do to reduce it. Try to focus on strategies to increase cash flow while identifying areas where you can cut costs.

In addition, prioritizing high-interest debt, as well as negotiating with creditors, can save you money and simplify your finances for better management. 

What Are The Types of Large Business Loans Available for Bad Credit?

If you are looking to get a large business loan with a bad credit score, there are a few options that you can explore where other factors – such as business revenue, years in operation, and cash flow – can play in your favor.

Here are a few of them:

• Secured business loans – this type of loans require collateral, such as real estate, equipment, or business assets that the lenders can seize if you default. The presence of a collateral reduces the risk for the lender.
• Business line of credit – another option that you can explore if you have a bad credit score is a business line of credit. This flexible tool can grant you access to a specific amount of funds that you can draw from as needed.
• Invoice financing – also known as accounts receivable financing, this option allows you to borrow money against the amounts due from customers. In this case, lenders are more interested in the creditworthiness of your customers.
• Equipment financing – a type of loan created specifically for purchasing business equipment, which serves as collateral for the loan. This can make it easier for you to qualify, even if you have a bad score.
• Merchant cash advances – this type of loan, commonly known as MCA, provides you with a lump sum in exchange for a portion of your future credit card sales.

Applying for a Large Business Loan with a Bad Credit Score

If you are looking for the right lender for a large business loan with a bad credit score, look no further than National Business Capital. 

With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.

Are you ready to get started? Apply here.