What counts as bad credit to a business lender
The cheapest options shrink as your score drops, and the cost can rise from single digits to triple digits. Most lenders use FICO scores, which run from 300 to 850. FICO calls 300 to 579 "poor" and 580 to 669 "fair" [1]. When an online lender says it works with bad credit, it usually means scores in the poor band or the low end of fair.
| Score | FICO label | What it usually means for business funding |
|---|---|---|
| 300 to 579 | Poor | Bank and SBA loans are unlikely. Online lenders with a 500 minimum, factoring and sales-based products remain. |
| 580 to 669 | Fair | Many online loans and lines of credit open up, at higher prices than a bank. |
| 670 to 739 | Good | Bank and SBA lenders start to consider you, if the rest of the file is strong. |
| 740 to 850 | Very good to exceptional | The lowest published prices are within reach. |
Your personal score matters even for a business. The SBA notes that poor credit history is one of the main reasons small business loan applications are declined [3]. If you have never checked your reports, do that first: an error you can dispute is the cheapest fix there is.
Your options with a low score, cheapest first
Each option below leans on something other than your score: a nonprofit's mission, the equipment itself, your customers' credit, or your daily sales. The ranges are national figures from the sources listed, not offers.
| Option | What it leans on | Published cost |
|---|---|---|
| SBA microloan | Nonprofit lenders, many of which focus on owners who had trouble getting credit elsewhere [1] | Generally 8% to 13% [5] |
| Equipment financing | The equipment secures it, so less credit and time in business may be needed [6] | 4% to 45% APR [2] |
| Invoice factoring | Your customers' credit and unpaid invoices | 1% to 5% of the invoice per month [7] |
| Line of credit | Cash flow and time in business | 10% to 99% APR [2] |
| Online term loan | Cash flow, revenue and time in business | 14% to 99% APR [2] |
| Merchant cash advance | Card sales or daily deposits; a purchase of future receivables, not a loan | Estimated 40% to 350% APR [2] |
NerdWallet's own guidance is to treat a merchant cash advance as a last resort, and only when you have a high volume of card sales to cover the collections [1]. If a microloan or equipment financing fits your need, it is usually worth the extra wait.
What a low score costs in dollars on $10,000
A lower score usually moves you from bank pricing to online pricing. On the same $10,000 repaid monthly over one year, here is how much that move can cost. Bank figures are average rates from the first quarter of 2026; online figures are APR ranges [2].
| Where the money comes from | Rate or price | Total cost |
|---|---|---|
| Bank small business loan (strong credit) | 6.37% to 10.98% | $348 to $605 |
| Online term loan | 14% to 99% APR | $774 to $6,130 |
| Merchant cash advance | Factor rate 1.1 to 1.5 | $1,000 to $5,000 in fees |
Factor-rate pricing hides the speed of the cost. NerdWallet's example: $50,000 priced at a 1.4 factor rate means $20,000 in fees, which works out to an estimated APR of nearly 69% if it is repaid weekly over one year [1]. Paid back faster, the same $20,000 means a higher APR. Put any offer you have into the translator above to see its dollars and estimated APR.
How we got these numbers
Loans: standard monthly payment on $10,000 for 12 months at each end of the range, minus the $10,000. Advance: $10,000 times the factor rate, minus the $10,000. Fees taken out up front would raise every figure.
What a lender may ask you to put behind the deal
When the score is weak, lenders look for something else that lowers their risk. That usually means one of two things: your personal promise, or a claim on business assets. Neither is unusual. In the Federal Reserve's survey, 59% of firms with debt had used a personal guarantee and 51% had used business assets to secure it [4].
- Personal guarantee: you agree to repay from your own money if the business cannot. Read whether it is limited to a dollar amount or unlimited.
- Lien on business assets: often a UCC filing that covers equipment, inventory or receivables. Ask what it covers and when it will be released.
- Specific collateral: a vehicle or a piece of equipment pledged to one deal. This can lower the price, which may be worth it when the price is high.
None of these are reasons to refuse an offer on their own. They are reasons to read the agreement slowly and to know what happens on a bad month before it arrives. Ask the lender, in writing, what counts as a default and what it can do if one happens.
How to improve your odds without waiting a year
- Pull your reports and dispute errors. It costs nothing and can move a score quickly.
- Ask for less. A smaller amount lowers the lender's risk and the payment you must carry.
- Offer collateral, even when it is optional. NerdWallet notes that business strengths, like collateral, can make an application more attractive when the score lags [1].
- Add a co-signer with stronger credit, knowing they owe the debt if you do not pay [1].
- Bring three to six months of bank statements that show steady deposits and few overdrafts.
- Choose a lender that reports on-time payments, so this round helps you qualify for cheaper money next time.
Expect to see more than one price. In the Federal Reserve's 2026 survey of employer firms, 60% of businesses that borrowed from online lenders said their actual costs were higher than they expected [4]. Getting the total payback in dollars before you sign is how you avoid being one of them.
Red flags that target owners with bad credit
Walk away, or slow down, if you see these
A promise of approval before anyone has seen your bank statements. No honest lender can know that yet.
An offer that shows only a factor rate or a "simple" rate, with no total payback in dollars and no estimated APR.
Pressure to sign today, or a fee you must pay before you are approved.
Daily debits sized to your best week, not your slowest one.
A new advance offered to pay off an advance you are still paying. See MCA stacking.
If you want a second pair of eyes, Batch Capital, our funding team, can walk you through what your file is likely to qualify for and what each option would cost in dollars before anything is run.