How to get a business loan with a bad credit score

Four tips to improve your chances of getting a business loan if you have a bad credit score

3-minute read

Having poor credit will make it more difficult to get a loan for your business, but not impossible.

Banks will consider a series of factors when assessing whether to give you a business loan. These include understanding the needs of your business, the project for which the loan is required, your business’s current financial situation as well as your personal credit score and net worth.

“A business’s financial situation is the most important factor we consider when deciding whether to approve a loan,” says Darryl Curtis, BDC Business Centre Manager in Meadowvale, Ontario. “It’s a judgment call. If a business is super strong, growing and has positive long-term prospects, the owner might have a bad personal credit rating and still get a loan.”

How to get a business loan

Find out what banks are looking for in a loan application.

Here are four tips Curtis offered for getting a business loan when you have a poor credit rating.

1. Be transparent

If you have poor credit, make no attempt to conceal this from your bank. On the contrary, explain your situation to your banker. “We won’t refuse you just because of a poor credit score,” Curtis says. “There might be a good reason. We always look at what’s behind the number.”

2. Be ready to pay more interest

The interest rate on your loan is based on the banker's assessment of the risk in lending to you. A premium will be charged when the risk is judged to be higher.

“If you have a bad credit rating, you can expect to pay a higher interest rate on the loan, even if your business has good prospects,” Curtis says.

3. Be patient

Credit scores are used by banks to quickly evaluate someone’s creditworthiness. Having a poor credit score slows down the lending process because your business’s financial documents will have to be examined more closely and the loan will likely need additional approvals.

“Credit scores speed up the lending process,” Curtis says. “As a lender you can get back to the client more efficiently. Instead of four to five weeks, we can do it in a couple of days. But a bad rating makes it harder and might slow down the process.”

4. Work to improve your credit score

You can take a number of steps to improve your credit. For example, Curtis advises entrepreneurs to avoid getting too many credit cards and using one credit card to pay debt on another. He also says it’s important to pay bills on time to build up your credit history.

Credit rating isn’t everything, it’s a model and it’s an indicator.

You can find these steps and others in this article, with advice on improving your credit so you can get the loan you want down the road.

Most of all, Curtis says, it’s important to remember that credit scores are only one of the many tools used by banks when assessing a business loan application.

“Credit rating isn’t everything, it’s a model and it’s an indicator. While we don’t want to make too many loans at a lower threshold, we do make some to good clients when it makes sense.”

For more information, download your free copy of our guide How to Get a Business Loan: A Guide to Preparing a Winning Loan Request.