We’re already halfway through 2020 and if anything can be said about the year thus far, it’s to expect the unexpected. As a result of COVID-19, many small businesses have suffered forced closures and reopenings pending compliance with dizzying and often contradictory regulations. While help has been provided by the Federal government in the form of the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDL), many small business owners have regretted taking governmental assistance because of the thick red tape around how the funds may be used, others are angry at the small assistance amounts doled out. Still other small business owners who applied for assistance but were ultimately rejected feel sidelined by the Federal government’s response to the forced closures.
If you’re a small business owner who feels rejected by their bank and concerned by the level of support from the government’s response to COVID, you’re certainly not alone. Working Capital has analyzed nearly 100 small business lenders and distilled down the list of the best lender options for those with bad credit. While some of the lenders we’ve highlighted advertise financing options for those with less than stellar business and personal credit, none guarantee approval. Keep in mind that small business lenders who don’t heavily weigh personal or business credit in their credit scoring algorithms may alternatively focus on the business’ monthly revenue, comparable credit, age of business, industry and its ability to weather another COVID-19 resurgence.
How to get a Business Loan with Bad Credit
Qualifying for small business financing may prove difficult, repetitive and anything but streamlined. In comparison to the large amount of consumer lenders willing to lend to those with less than perfect credit, we’ve found less than 30 active lenders willing to consider applications where the owner’s personal credit score is less than 600, or where the business credit has one or more current payment issues with creditors. Traditional lenders like credit unions, local and nationally-chartered banks prioritize personal credit ahead of business credit, but will always weigh both. Given the current pandemic, these lenders are all hyper-sensitive to exposure, especially when it comes to lending to consumers and businesses with negatively reporting tradelines.
Most small business owners turn to term loans, merchant cash advances, business lines of credit and business credit cards. Generally, each of these options include a digital application process and flexible spending terms. If you, your business partner or your business credit has negative reporting tradelines, such as a personal or business bankruptcy or a defaulted loan, we recommend pivoting from applying with your local bank and using an online lender. Online lenders tend to have a better online customer experience, a more lenient approach to bad credit business loans and therefore offer a better chance for approval.
There are many reasons that an online lender may decline your application for business financing. Issues like low revenue, non-sufficient funds (NSFs), negative-ending days in your business bank accounts, or a low FICO score are generally red flags. If you find your application declined by an online lender, it may give reason for pause. Are there steps that you can take to improve your personal credit score? Do you have outstanding Accounts Receivable that you can collect on in the meantime? If any of the answers to the questions above are yes, you may want to refocus your efforts, improve your financial situation and then re-apply with an online lender for financing.
Alternatively, issues that would normally automatically disqualify you for approval with a traditional lender like industry, time in business, or FICO score won’t prove impossible to overcome if you have strong revenues, consistent bank account deposits and balances. In fact, we’ve found that merchant cash advance lenders are most likely to approve you for small business financing and overlook the aforementioned credit issues. Keep in mind that their offers may be short term in comparison to the average business loan and loan amount (referred to as “Advanced Amount”) is calculated as percent of gross revenue, so don’t be surprised if the advance is smaller as well. As a precautionary measure, go into the application process with a firm understanding of what you can afford per day since the bulk of these advances require a daily or at best weekly payment remittance.
Best Bad Credit Business Loans for Credit Scores Under 600
Sifting through a list of 100 business lenders isn’t easy. It’s as time consuming as it is confusing. To make matters worse, as a result of COVID, it’s almost impossible to report if a lender is actively lending, limiting lending to Paycheck Protection Program (PPP) applicants and/or current customers, or has paused lending all together. Luckily, we’ve done the legwork for you, so sit back and enjoy our findings. We’re certain that our easy-to-read format will help you to better understand which online lender is willing to approve business loans for low credit scores.
Kalamata Capital Group
Why we recommend it: Kalamata differs from other small business lenders who temporarily halted lending during the first few months of the COVID-19 lockdown, and instead remained open, willing to help small businesses affected by the mandatory shelter-in-place guidelines. We find this fact important because given the proliferation of online lenders willing to lend to small businesses with bad credit, Kalamata distinguished itself by providing payment reprieve, a pause in interest accrual and principal reduction.
Furthermore, Kalamata is willing to lend to small businesses affected by COVID-19 who were lucky enough to receive payment reprieve from other online alternative lenders. This is another distinguishing characteristic because from our research other lenders view any payment reprieve as a scarlet letter and in turn automatically decline. While we assume that this is a temporary change in their underwriting, Kalamata is willing to look past any loan modifications and look for strength in the business application elsewhere. One caveat is that Kalamata requires the business applicant to have normalized debits from outstanding daily payment loans or weekly advances. If you plan to apply with Kalamata Capital and have recently modified loan payments with other business lenders, be advised that you will need to submit your original loan contracts with your application for financing.
Downside: Kalamata requires two years in business and $50,000 in monthly gross revenue. This is a hard and fast rule during COVID-19. Additionally, they also require the applicant’s business bank account to reflect an average of more than $5,000/day. If your business has suffered a decline in revenue during the last three months, we’d encourage you to apply elsewhere.
- Industry Preferences: Construction, Trucking
- Prohibited Industries: Financial Planning, Used Auto Sales
- Credit Check: Kalamata Capital Group performs a soft credit check
- Term Length Available: 4-12 months
- Early Payoff Discount: Kalamata Capital Group does offer an early payoff discount ranging from 1-10%
- Rates: 1.30 – 1.49
Wall Street Funding
Why we recommend it: Wall Street Funding is an excellent source for funding for small business owners who have existing business loans or ‘stacks.” While many lenders in the merchant cash advance space seem to look down upon small business owners who stack positions, Wall Street prides itself on having a more holistic approach to commercial lending. Often referred to as a “story lender,” Wall Street strives to better understand their applicants and find a solution that works for both parties. If you’re a small business owner that has two or more small business loans, Wall Street is a great lender to apply with for both additional capital and also to try and consolidate your working capital business loans into a single position. To the extent that a small business owner is looking for a large loan or to consolidate numerous positions into one large position, Wall Street may be a great resource for loans up to $500,000.
Wall Street Funding also offers weekly payment options to small business owners. From our research, most merchant cash advance lenders offer financing where daily debits are taken from the merchant’s business checking account. To a business owner, the frequency of daily debits may make managing their day-to-day cash flow difficult. Therefore, Wall Street Fuding’s approach to a merchant’s payback may put the business owner or their CFO/controller’s mind at ease.
Downside: For those interested in applying with Wall Street Funding, be advised that they require more credit stipulations when compared to similar lenders in the merchant cash advance space. This means that the average transaction may take longer to fund with Wall Street, which may mean more headaches and hoops to jump through for the business owner. One stipulation that Wall Street requires, irrespective of the loan application amount is a valid U.S. Business Tax Return on the business entity.
If your business is a sole proprietorship, chances are that Wall Street will not approve your file, so you may want to pivot to another lender listed here.
Lastly, if you own a small construction company and are looking for financing, Wall Street is most likely not the best funding source since they require $100,000 in monthly revenue.
- Industry Preferences: Automotive, beauty and salon, construction, dentistry, medical, liquor Store, retail store,
restaurants and trucking. - Prohibited Industries: Collection agencies, Nonprofits, Gambling or Casinos, Financial Institutions, Jewelry (retail and wholesale), Adult Entertainment, Aviation (airplane parts, manufacturing, flights), Farming, Marijuana or Cannabis (Products, Processing, Growth, Sales of Marijuana, or Sales of Marijuana-related products)
- Credit Check: Wall Street Funding performs a soft credit check
- Term Length Available: Four to 36 months
- Early Payoff Discount: Wall Street Funding does offer an early payoff discount ranging from 1-10%
- Rates: 1.34-1.41
PIRS Capital
Why we recommend it: PIRS Capital is a great choice for business owners looking for a large loan with a fast turnaround time. Their application process is completely automated and applicants can receive their funding wired or via ACH deposit into their business bank account in less than 24 hours. If you’re considering applying with PIRS Capital for business funding, you may thank yourself in the end since very little paperwork is required to receive approval and stipulations to close are minimal.
Another great reason to choose PIRS Capital is that they offer weekly payments, while so many other lenders we’ve reviewed only offer daily payment loans. Like Knight Capital, PIRS offers financing to start-up businesses.
Downside: Construction businesses interested in applying with PIRS will need to have a minimum of 11 deposits in their business checking account per/month. Many contractors struggling to make the jump from a sole proprietor to corporation know these problems all too well. As a contractor, you want to take on more business and expand your product offering. However, without the proper staffing you may find yourself spread too thin. Jobs then become albatrosses, you miss deadlines, your reputation suffers and your payment from the general contractor is delayed. If this sounds all too familiar, chances are PIRS Capital isn’t the right funding partner for your business. Additionally, since PIRS Capital won’t work with home-based businesses, if you don’t have a brick and mortar business, you should take your business elsewhere.
- Industry Preferences: Manufacturing, medical, construction
- Prohibited Industries: Freight transportation arrangement, Local transportation, Towing, Limo/Taxi Service, Grocery Stores, Real Estate Rental and leasing, Casino/gambling, Travel Agencies, Vape Shops, Courier Service and Delivery, Passenger Transportation, Used Car Sales, Tax Aid CPA/full-service CPA, Residential Remodelers, Specialty trade contractors, Residential building construction & Warehousing Services
- Credit Check: PIRS Capital performs a soft credit check
- Term Length Available: 3 – 12-month max term length available
- Early Payoff Discount: PIRS Capital does offer an early payoff discount ranging from 1-10%.
- Rates: 1.20 – 1.52
NewCo Capital Group
Why we recommend it: NewCO Capital Group is a great choice for business owners who have existing positions and are looking for additional financing. While they are a newer lender to the merchant cash advance space, the management team has over a dozen years of experience
funding working capital business loans.
Additionally, NewCo Capital really shines when it comes to offering merchants early payoff discounts. If you’re a business owner with poor credit looking for fast access to business financing, specifically a merchant cash advance, but you’re certain that it’s a short-term need and that you can pay off the loan in less than 90 days, NewCo is probably your best option. As an example, if you had a merchant cash advance with NewCo and wanted to prepay your loan, you may be offered a discount of three to ten points per month.
Similar to other lenders reviewed in this article, NewCo offers fast turnaround times on both decisions and fundings. However, if you’re a business owner with less-than-perfect credit and is looking for a larger merchant cash advance or business loan, NewCo may be the best option. While their underwriting is quite similar to the majority of lenders we reviewed, NewCo offers a larger percentage of gross revenue to businesses in need of capital. We found that on average NewCo offers 30% of a business’ monthly gross revenue. For example, if your business has $500,000 in annual revenue, or approximately $40,000 in monthly revenue, NewCO will advance your business 30% of $40,000 or $12,000 * an average term of six months, or $72,000.
Again, given NewCo Capital Group’s early payoff discount and larger approvals, NewCo is a great option for fast access to large amounts of capital where the need is purely short-term.
Downside: Potential downsides of working with NewCo Capital Group are limited. Firstly, NewCo requires a business applicant to have a minimum gross monthly revenue of $40,000 or $480,000 in annual gross revenue.
Many businesses owners that Working Capital spoke with took a second position merchant cash advance from NewCo. However we found that if a business had no positions or advances and used NewCo, the price of that cash advance would be more expensive when compared to first
position loans with other lenders. It is therefore our finding that NewCo is best used as a second or third position loan and not a first position one.
Lastly, NewCo Capital Group is a rather conservative lender when compared to other merchant cash advance companies. This may be a direct result of them being a newer company to the space, but it also could be that they first came online right as COVID-19 hit. Either way, our assessment is that they’re a great choice for borrowers that need access to large amounts of short-term capital where there’s a likelihood of paying the loan back ahead of time.
- Industry Preferences: Medical, construction, retail, restaurants, trucking
- Prohibited Industries: Auto sales, financial services
- Credit Check: NewCo Capital Group performs a soft credit check
- Term Length Available: 4-8 months
- Early Payoff Discount: NewCo Capital Group does offer an early payoff discount ranging from 1-10%
- Rates: 1.35-1.49
Best Bad Business Credit Loans for Credit Scores Under 500
Central Diligence Group
Why we recommend it: Central Diligence Group is another great option for small business owners who have poor credit, but still need fast access to capital. Like so many other merchant cash advance lenders, Central Diligence Group only only requires 51% of ownership to apply for financing, can work with businesses who have existing loans or cash advance positions and offer fast decisions.
Given the aforementioned similarities, Central Diligence separates themselves from other merchant cash advance lenders in a big way-they manually underwrite their files. From our research we found that Central Diligence Group has a very manual approach to underwriting and doesn’t just rely on third party software integrations to make a decision on a file. Instead, Central Diligence uses a common sense approach to lending and that may be reason enough to apply with them if you’re worried that your poor business credit or poor personal credit may affect your ability to borrow. Often categorized as a “story lender,” Central Diligence Group manually reviews each commercial credit application and conducts a merchant interview with the business owner to determine the actual borrower’s needs, their plan to repay the debt, how the loan proceeds will actually be put to work and what will happen if the business owner isn’t able to borrow the funds.
Downside: Given that rates and loan payment terms are fairly even with their competition, the only downside we uncovered to working with Central Diligence Group is their higher than average origination fee of 3%-5%. As an example, if your business was to borrow $100,000 from Central Diligence Group, you might expect to pay a processing fee of $3,000 to $5,000. This amount would be deducted from the actual loan disbursement wired or deposited via ACH into the business’ checking account.
- Industry Preferences: Construction, healthcare, food service, auto repair, trucking ($50k/month revenue required)
- Prohibited Industries: Used car sales, law firms, oil/gas companies
- Credit Check: Central Diligence Group performs soft credit checks
- Term Length Available: 3-6 months
- Early Payoff Discount: 1st and 2nd positions for our tier 2 and 3 we can do: 30, 60, 90, and 120 days discount at -2 points per month. For our premium pricing (Tier 1), we can do up to 11 months discount at -1 point per month.
- Rates: 1.32-1.45
Forward Financing
Why we recommend it: Forward Financing is another great option for business owners with challenged business credit and poor personal credit who still need fast access to financing. Like so many of the other merchant cash advance lenders we’ve reviewed, Forward Financing will work with business owners who have existing positions or advances. If you’re thinking about applying with Forward Financing, one aspect of their credit process that you’ll truly appreciate is that they underwrite their files ahead of time. Most merchant cash advance lenders don’t fully underwrite a file prior to having executed contracts in-house. If that sounds a bit misleading, you’re not alone. Forward Financing empathizes with merchants who have had to endure the rigorous back and forth process with other merchant cash advance lenders. In that process, lenders will communicate to the borrower that their file is approved, send out loan contracts and ultimately tell the borrower that their file is declined in final underwriting. To avoid that type of confusion, apply with Forward Financing for your next merchant cash advance.
Another big advantage of working with Forward Financing is that in addition to them underwriting files upfront to avoid miscommunication, they also have light stipulations required for funding. Forward Financing cuts out the much hated back and forth between lender and merchant by approving files quickly and funding them even faster. From our research, you can expect an approval in hours and funding the next business day.
Downside: As they say, “what’s in the past is in the past.” But for the merchants left out in the cold, scrambling to find fast access to capital during the early COVID months (April-June 2020), the nightmare of not being able to rely on lenders like Forward still haunt borrowers in their sleep. Forward Financing was one of many lenders that took more than a pause in their commercial lending and all but shut down.
Another downside to working with Forward Financing is that they are a pure “C/D” lender. For merchants searching for the best bad credit business lender, you may have found a great partner, but for those businesses who aren’t, your best to continue your search for a proper lending partner that has pricing that reflects inherent risk.
- Industry Preferences: None
- Prohibited Industries: Financial Services, Adult Entertainment, Auto Dealers, Auction, Auto Sales (Under $100K / month in revenue), Bail Bonds, Cannabis-related, Check Cashing & Money Wiring, Commodity-based (precious metals), Cryptocurrencies (Bitcoin and other digital currency related businesses), Debt Collection & Bankruptcy Lawyer, Drug Paraphernalia, Firearms, Guns, & Ammunition Manufacturer & Sales, Lending / Financing Firm (equipment finance), Lottery & Gaming, Multi-level Marketing, Non-Profit & Religious, Oil & Gas Exploration, Pawn Shops, Publicly Traded Companies, Real Estate Investment & Travel Agency
- Credit Check: Forward Financing performs soft credit checks
- Term Length Available: 3-9 months
- Rates: 1.35-1.53
Everest Business Funding
Why we recommend it: Everest Business Funding went offline during the early months of COVID-19. Their absence added to the uncertainty and exasperation for many commercial borrowers who were looking for bad credit business loans, specifically merchant cash advances for bad credit borrowers. While many lenders in the merchant cash advance space paused during the early COVID months, Everest’s absence was definitely felt by many business owners who were looking to refinance their existing business loans (often referred to as positions). Given the uncertainty in the markets as a result of COVID, we still recommend Everest because of their historical reputation in the merchant cash advance space and also that they’re back online lending as of the time this article was published.
We uncovered two additional reasons to recommend Everest Business Funding to business owners with bad business credit. The first and perhaps the most compelling reason we found was that Everest Business Funding offered loan approvals that were measurably larger than average relative to the business’ revenue versus their competitors. While most lenders will advance 20%-25% of a business’ gross revenue, our research shows that Everest Business Funding is comfortable with advancing up to 30% of a business’ gross revenue. Secondly, we found Everest Business Funding to have a light stipulation requirement for funding which helps to expedite your file to funding.
Downside: The largest downside we found in our research was that Everest Business Funding has capped their approvals to $50,000 during COVID. When comparing their credit window, turn around time, rates and the fact that they perform a hard credit check, we’ve found other lenders that seemingly provide more value at this time.
Similar to their competitor’s, Everest Business Funding charges origination and documentation fees that range from two to three percent of the funded amount. As an example, if you were to borrow $50,000, you’d pay nearly $1700 in fees. As is industry standard, those fees would be deducted from your loan disbursement.
- Industry Preferences: Essential businesses due to the climate we are in will be great deals. Depending on the location/revenue restaurants due well and which make them a good industry as well.
- Prohibited Industries: Trucking/Transportation, Auto Sales, Law Firms, Financial Services & Construction
- Credit Check: Everest Business Funding performs a hard credit check
- Term Length Available: 4-8 months
- Early Payoff Discount: 5 points for the 1st 30 days and 4 points for the 1st 60 days.
- Rates: 1.4-1.5
Best Large Loans for those with Bad Credit
Yellowstone Capital Group
Why we recommend it: Yellowstone Capital Group, now known as Fundry is the most flexible lender we reviewed. If your business is in a rush to get financing, not all partners are available to sign, you don’t want to dig through old filing cabinets to find old incorporation and bylaw documentation and you’re willing to pay for fast decision and same day funding, Yellowstone is probably your best bet.
From reviewing over 100 lenders in the alternative lending or merchant cash advance space, we found it relatively difficult to compare and contract lenders since most offered similar approval amounts over short terms. Where Yellowstone really shines is that they are seemingly the most unbiased small business lender, having little regard for time in business or industry. Additionally, we found that even new businesses were able to secure funding from Yellowstone, where as many other lenders in the space had a hard and fast rule requiring two or more years in business.
We give Yellowstone extra kudos for their behavior during COVID. As mentioned, too many lenders shied away from making new loans in the second quarter of 2020, but Yellowstone kept the light on and continued making offers for financing during this uncertain time.
In sum, if you’re a newer business that is willing to expand at all costs, has high margins and is looking for fast access to cash from a flexible financing partner, Yellowstone is probably your best bet.
Downside: While Yellowstone does offer a fast turnaround, a flexible credit window and large approvals, applicants should be cautious about fees and the short-term nature of their approvals.
- Industry Preferences: Yellowstone Capital Group is the most flexible merchant cash advance lender in the United States, having no known industry preference or bias.
- Prohibited Industries: Legal and Lawyers
- Credit Check: Yellowstone Capital Group performs hard credit checks
- Term Length Available: 2.85 – 4.76 months
- Early Payoff Discount: 10% off the balance if paid within the first 30 days of funding.
- Rates: 1.45 – 1.46
ByzFunder
Why we recommend it: ByzFunder is a great option for business owners looking for a fast decision, a large approval has existing positions or advances. In fact, ByzFunder is willing to offer a business owner a fourth position loan, which is extremely rare in today’s lending environment. ByzFunder also specializes in consolidating business loans, which makes them extremely valuable to businesses laden with debt, but are still able to meet their debt service requirements.
From our research, ByzFunder has the fastest underwriting process, the widest credit window, and offers the merchant the most financing flexibility. Unlike its competitors, ByzFunder offers weekly and bi-weekly payment options and large prepayment discounts.
Downside: ByzFunder does not approve merchants that are on modified payments with other merchant cash advance lenders.
- Industry Preferences: Construction, Manufacturing, Trucking and Medical.
- Prohibited Industries: Adult Entertainment, Auto & Truck Repossession, Bail Bonds, Check Cashers, Collection Agencies, Credit and Debit Repair, Gambling Industry, Marijuana Industry, Non-Profits, Place of Worship, Public Companies & Used Auto Sales.
- Credit Check: Byzfunder performs a soft credit check.
- Term Length Available: 3-8 months
- Early Payoff Discount: 15% off the balance if paid within 30 days, 10% off the balance if paid within 60 days. 5% off the balance if paid within 90 days.
- Rates: 1.38 – 1.43
Knight Capital Funding
Why we recommend it: Knight Capital Funding Group has historically been a preferred lender in the merchant cash advance space because of their fast process, the wide credit window and their ability to look past a business owner’s credit history and fund with ease.
Downside: Like too many other merchant cash advance lenders, Knight Capital paused their loan originations during the early COVID months (April-June 2020). This may have had more to do with their acquisition by publicly-traded Ready Capital Corporation, but that interruption was definitely felt by small business owners with bad credit looking for capital.
Currently, Knight Capital Funding Group does not offer weekly payment options, so merchants who are approved will be subject to daily debits, usually 21-22 days a month, no weekend or holidays. During COVID, the maximum term offered is eight months (176 payments).
- Industry Preferences: Agriculture, Auto Repair, Body Shops Convenience Store Delivery, Services Dentists, Dry Cleaning, Doctors, Farms, Fast Food, Funeral Home, Gas Stations, Healthcare, Home Healthcare, Janitorial, Medical Transport, Mini Market, Sanitation, Oil Change Shops, Transmission Shops, Utilities, Sanitation, Accounting Nursing Homes, Greenhouses Hardware Store, HVAC, Home Renovations, Landscaping, Insurance, Internet Providers, IT Consulting, Marketing, Media,Muffler Shops, Office Maintenance, Paving, Payroll, Painting, Plant Nurseries, Pest Control, Plumbing, Printing, Property Management, Public Relations,Real Estate, Rehab Facilities, Roofing, Security Guard, Shipping, Environmental, Staffing, Tax Prep, Technology, Telecommunications, Trucking, Towing, Web Development, Web Hosting, Wholesale, Liquor Stores & Logistics Companies
- Prohibited Industries: Financial Services
- Credit Check: Knight Capital Funding performs soft credit checks
- Term Length Available: 3-8 months
- Rates: 1.25-1.37
While the list we compiled of merchant cash advance lenders that we reviewed is comprehensive, we encourage you to take full advantage of applying with multiple lenders at once and comparing offers.
From our research, we believe that though most business loans for bad credit will have similar pricing, other factors may differ greatly such as time to funding, loan term, origination fees and documentation fees, early payoff discount, etc.
