How to Get a Commercial Loan with Bad Credit

Securing a commercial loan with bad credit can be challenging, but it’s not impossible. This guide provides practical steps and tips to help you obtain a commercial loan even if your credit score is less than perfect.

Understanding Bad Credit

1. What is Bad Credit?

Bad credit typically refers to a credit score below 580 on the FICO scale. This can result from missed payments, high credit utilization, or other financial missteps.

2. Impact on Loan Applications

Lenders view bad credit as a risk factor, making it more difficult to secure loans and often resulting in higher interest rates.

Steps to Get a Commercial Loan with Bad Credit

1. Evaluate Your Credit Report

Before applying for a loan, obtain a copy of your credit report and review it for errors. Dispute any inaccuracies with the credit bureaus to improve your credit score.

2. Prepare a Solid Business Plan

A detailed business plan can help convince lenders that your business is a good investment, even with bad credit. Include financial projections, market analysis, and a clear strategy for growth.

3. Consider Alternative Lenders

Traditional banks may be hesitant to lend to businesses with bad credit, but alternative lenders, such as online lenders, credit unions, and peer-to-peer lending platforms, may be more flexible.

  • Popular Alternative Lenders:
    • Kabbage
    • OnDeck
    • Fundbox
    • LendingClub

4. Explore Secured Loans

Secured loans require collateral, such as real estate or equipment, which can reduce the lender’s risk and improve your chances of approval.

5. Use a Co-Signer

A co-signer with good credit can improve your chances of getting approved and may help you secure better loan terms.

6. Build Relationships with Lenders

Establish relationships with local banks and credit unions. Personal connections can sometimes help when applying for a loan.

Types of Commercial Loans for Bad Credit

1. Short-Term Loans

Short-term loans provide quick access to capital and typically have higher approval rates, but they come with higher interest rates and shorter repayment periods.

2. Merchant Cash Advances

A merchant cash advance provides a lump sum in exchange for a percentage of future sales. This can be a good option for businesses with consistent sales.

3. Invoice Financing

Invoice financing allows you to borrow against your outstanding invoices, providing quick cash flow without taking on traditional debt.

4. Equipment Financing

Equipment financing uses the equipment you purchase as collateral. This can be easier to obtain because the lender can repossess the equipment if you default.

Improving Your Chances of Approval

1. Increase Your Down Payment

Offering a larger down payment can reduce the lender’s risk and improve your chances of approval.

2. Demonstrate Cash Flow

Show consistent cash flow and the ability to repay the loan. Lenders want to see that your business generates enough revenue to cover loan payments.

3. Reduce Existing Debt

Pay down existing debt to improve your credit utilization ratio and demonstrate financial responsibility.

4. Provide Strong Financial Statements

Submit detailed financial statements, including profit and loss statements, balance sheets, and cash flow statements, to give lenders a clear picture of your business’s financial health.

Common Questions About Getting a Commercial Loan with Bad Credit

Is it possible to get a commercial loan with bad credit?

Yes, it is possible to get a commercial loan with bad credit by exploring alternative lenders, considering secured loans, and demonstrating strong business fundamentals.

What interest rates can I expect with bad credit?

Interest rates will likely be higher for borrowers with bad credit. However, shopping around and comparing offers can help you find the best rates available.

How can I improve my credit score before applying for a loan?

To improve your credit score, pay your bills on time, reduce debt, dispute any errors on your credit report, and avoid opening new credit accounts before applying for a loan.


Getting a commercial loan with bad credit requires strategic planning, thorough preparation, and exploring various lending options. By following the steps and tips outlined in this guide, you can increase your chances of securing the financing your business needs to grow and succeed.

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