1. Understand What “Bad Credit” Means
Bad credit typically refers to a credit score below 600. It signals lenders that you’ve had issues repaying debt, making loan approval more challenging but not impossible.
2. Look for Specialized Bad Credit Lenders
Certain lenders cater to borrowers with poor credit, offering loans based on your business potential rather than just your score. Examples include microloan providers and online alternative lenders.
3. Consider Government-Backed Start Up Schemes
In the UK, the Start Up Loans Scheme considers applicants with poor credit, especially if you have a solid business plan. In the US, SBA Microloans may be more lenient than banks.
4. Apply for a Secured Business Loan
Offering collateral—like equipment, vehicles, or property—can reduce lender risk and improve your chances of approval despite bad credit.
5. Use a Guarantor
A guarantor (friend, family member, or partner with good credit) can co-sign your loan, giving lenders added security and increasing approval chances.
6. Start with a Microloan
Microloans, typically under £25,000, are more accessible to bad credit borrowers. They’re often offered by nonprofit organizations or community development lenders.
7. Explore Peer-to-Peer (P2P) Lending
Platforms like Funding Circle or LendingClub allow individual investors to fund your business. P2P lenders often assess risk differently and may approve lower-credit applicants.
8. Build a Strong Business Plan
Lenders want assurance that your business will succeed. A detailed, realistic plan showing market research, revenue forecasts, and cash flow can outweigh credit concerns.
9. Try Crowdfunding as an Alternative
If loans aren’t accessible, raise capital through platforms like Kickstarter or GoFundMe. These don’t require credit checks and are based on public interest and promotion.
10. Use Personal or Family Loans Carefully
While not ideal for everyone, borrowing from friends or family can bypass credit issues. Always create formal agreements to avoid disputes.
11. Apply for Business Grants
Grants are non-repayable and don’t require credit checks. Look for local government or nonprofit options, especially for minority, women, or youth entrepreneurs.
12. Improve Your Credit Score Before Applying
Pay off outstanding debts, correct errors on your credit report, and avoid new credit applications in the months leading up to a loan request.
13. Consider Revenue-Based Financing
If you have early sales, you might qualify for revenue-based loans where repayments are tied to monthly earnings instead of a fixed schedule.
14. Choose Equipment or Invoice Financing
If your business involves buying assets or billing clients, consider these asset-backed loans. Lenders focus more on the asset than your credit.
15. Work with a Business Advisor or Mentor
Seek help from organizations like SCORE, Business Gateway, or local enterprise hubs. They offer free advice, connections to funders, and help with loan applications.
Frequently Asked Questions
Q1: Can I really get a start up loan with bad credit?
Yes. While harder, options like microloans, secured loans, and government schemes still exist.
Q2: What’s the best start up loan for bad credit in the UK?
The Start Up Loans Scheme is a top option—it accepts low credit scores with a strong business plan.
Q3: How much can I borrow with bad credit?
Typically between £1,000 and £25,000 depending on the lender and whether you offer security.
Q4: Does applying for multiple loans hurt my credit?
Yes. Each hard inquiry can lower your score slightly. Use loan comparison tools that do soft checks first.
Q5: Will having a business plan really help?
Absolutely. It shows lenders you’re serious, prepared, and understand your market and financials.
Q6: How long does approval take?
Online lenders may respond within days. Government-backed loans can take 2–6 weeks.
Conclusion
Getting start up loans for bad credit is possible with the right approach. Focus on specialized lenders, present a strong business case, and explore alternative funding options. Persistence and preparation can help you overcome credit obstacles and fund your entrepreneurial journey.
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