Last Updated May 27, 2025
There’s a lot to consider before starting a business. One aspect of launching a company that tends to get overlooked is figuring out how to obtain financing with bad (or nonexistent) business credit.
Bad credit can pose a challenge, limiting your ability to qualify for a loan or resulting in high interest rates that can be difficult to repay. And if you’re opening your first company, you don’t even have business credit history. This leads many to wonder, can you start a business with terrible credit or nonexistent credit?
While it may take some extra work, it’s definitely possible. But in order to do so, you’ll need to create a roadmap. Continue reading to learn how to do so.
What Is Considered Bad Credit?
One thing that is important to remember is that businesses have a different credit score system than personal credit scores. Business credit scores range from 0 to 100 and are reported by Experian, Equifax, and Dun & Bradstreet. Personal credit scores range from 300 to 850 and are reported by Experian, Equifax, and TransUnion.
For business credit scores, a score between 0 and 49 is considered bad and represents a high-risk borrower. For new businesses that don’t have an established credit history, lenders may look at your personal credit score instead. A VantageScore score below 600 or a FICO score below 580 is usually considered bad for personal credit.
Can You Start a Business With Terrible Credit?
While getting loans to start a business with bad credit can be difficult, this doesn’t mean it’s impossible to start a business if you have a low credit score. Starting a business is ultimately dependent on your ability to get funding to cover your startup expenses.
Some lenders specialize in high-risk business loans, but these loans tend to come with high interest rates and short repayment terms that can make them difficult to repay. Fortunately, small business loans aren’t the only way that business owners can get the funding they need.
How to Start a Business With Bad Credit
Knowing business loans that are attainable with bad credit can help you identify which solutions will work best for addressing your business’s needs.
Explore Peer-to-Peer Lending and Crowdfunding
Crowdfunding and peer-to-peer lending have become increasingly popular alternatives to traditional lending. With crowdfunding, businesses use platforms like Kickstarter or GoFundMe to raise money for their business or specific projects. Contributions may come from your family, friends, and business associates, as well as others interested in the business. Rewards or incentives (such as early access to your product) are often linked with different donation amounts.
Peer-to-peer lending allows businesses to borrow money from individuals who aren’t associated with a bank or other financial institution. Investors receive interest on their loans rather than gaining ownership or shareholder status, similar to a bank loan.
Apply for Startup and Small Business Grants
Depending on your business, you may be able to apply for grants for startups and small businesses. The government offers a variety of grants through grants.gov, while GrantWatch makes it easy to search for grant opportunities from foundations, corporations, and the government. It’s worth looking up different grants to see which ones you might qualify for.
Try Equipment Financing (Inventory Financing)
Rather than trying to get a general business loan, an alternative is to finance the specific equipment or inventory you need to purchase for your business. For example, an owner-operator could finance the semi-truck they plan to purchase for carrying out their business operations.
With specific equipment or inventory serving as collateral for the loan, lenders may be more willing to lend to you in the first place.
Consider Other Methods of Alternative Financing
There are several other alternative lending solutions that could be used when trying to start a business with bad credit, though these could prove more costly for your business in the long run. For example, a merchant cash advance (MCA) provides a cash advance to your business based on anticipated credit or debit card sales. Payments on these loans are made daily or weekly by deducting a percentage of your credit and debit card sales.
Similarly, ACH loans are based on your business checking account’s daily balance, and automated withdrawals are made from that account on a daily or weekly basis.
These and other alternative financing methods carry high APRs and can make it harder to manage your cash flow, so be careful before using them.
Use Invoice Factoring
If you already have clients, invoice factoring can be a worthwhile solution to obtain needed funding. With invoice factoring, you sell your unpaid invoice to a factoring company for a cash advance. You’ll typically receive 80%-90% of the value of the invoice up front and the remaining balance after the factoring company collects payment from your client. Cash can often be transferred to your business on the same day you apply.
Rather than a loan where you repay the cash with interest, you don’t take on any debt. The factoring company simply deducts a fee (typically 1% to 5% of the balance of the invoice) as payment.
Tops for Building Your Business Credit
While alternative funding solutions can help you get the money you need to start a business with bad credit, it’s best to take steps to improve your business credit score for the future. This is a long-term process, so patience and consistency are key.
Incorporate Your Business As an LLC
First, you need to incorporate your business as an LLC rather than operating as a sole proprietor. This can help you look more professional and committed to prospective lenders. More importantly, establishing your business as an LLC allows you to open business financial accounts, which you need to start building a business credit score.
Open a Business Bank Account
Opening a business bank account separates your business and personal finances while also making it easier to track income and expenses for tax purposes. A business bank account helps build a professional image for your company that increases trust with clients and vendors.
Finally, a properly managed business bank account can also strengthen your relationship with your bank and demonstrate your financial responsibility, which could make them more willing to lend to you in the future.
Always Pay on Time
One of the most common reasons why small businesses fail is poor cash flow management. While you might be tempted to make late payments as you juggle various cash flow responsibilities, this is never a good idea.
You should always make payments to vendors and lenders on time. Making on-time payments will build a positive credit history. Late and missed payments, on the other hand, will hurt your credit score.
Get a DUNS Number
A DUNS number is a nine-digit identifier from Dun & Bradstreet that can be assigned to your business. As one of the main business credit reporting agencies, getting a DUNS number will make it easier to access your business credit history and credit report. This allows you to check what information others see when they look into your credit score.
Apply for a Business Credit Card
Even when you have bad credit, you can get a business credit card to make business purchases. While you may have a relatively low credit limit at first, consistently making on-time payments for your credit card will help you build a positive credit history. Ideally, you should try to pay your business credit card bill in full each month, as high interest rates can add up quickly on cards for businesses with poor or no credit history.
Ensure Business Credit Reports Have All Your Up-to-Date Information
Your credit score doesn’t just affect your business when you’re first starting out. As your small business grows, you’ll likely need financing at other times to cover expansion opportunities like opening a new location or buying new equipment. Your business credit score will be equally important at these times, and you want to make sure your score is always presented accurately.
Routinely checking your business credit reports will help you confirm if they are accurate and up to date. When you identify errors or outdated information, you can communicate with the credit reporting bureau to get that information corrected, which will help your credit score and improve future financing options.
Need Business Financing but Have Bad Credit? Try Factoring With altLINE
Even after you get your business up and running, a low credit score could make it hard to get the financing you need to cover expansion plans or day-to-day expenses. Invoice factoring with altLINE is a great alternative financing option that allows you to turn your outstanding invoices into cash.
There is no minimum credit score to qualify for invoice factoring. Our system offers fast approval with same-day funding and complimentary customer credit checks. With rates starting as low as 0.75%, invoice factoring with altLINE is a safe and effective way to get the funding you need, even when your own credit score still needs some work.
If you think might be a fit for factoring, feel free to reach out to one of our representatives at +1 (205) 607-0811 or fill out our free factoring quote form.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
