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How to start a business with no money and bad credit

As businesses seek funding to weather the storm of COVID-19, there are many options to consider based on your credit, how fast you need the funds, and the amount you need to borrow.

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With COVID-19 changing the economic landscape, small businesses are feeling the heat and looking for sustainability options. While it is always possible to bootstrap a small business in certain service based businesses like window washing or yard work, most businesses need additional funding or loans to get off the ground or scale properly. If you’re a business owner with poor credit, lending can seem complicated or impossible. But with online lending, and a greater variety of programs available, small business owners actually have more lending options than ever that will get them money quickly -- and won’t leave them strapped for cash. 

So what exactly counts as poor credit? Most lenders consider anything under a credit score of 600 as “poor,” which flags the borrower as an investment risk to lenders who need to assess how likely you are able to pay back your debts. Things that can contribute to your credit score include outstanding debts, repayment history, and credit history.

The good news is that there are plenty of options for small business owners with iffy credit to get funding quickly. 

In this post:

🐣What Funding Options Are Available?


🐣Working Capital Loans and Lines of Credit

🐣Term Loans

🐣Payday Lending


What Funding Options are Available? 

Small business owners with poor credit shouldn’t feel too frustrated, as online lending has opened the field for financial companies to compete for your favor. When looking at how to fund your business right now here’s an array of options to consider:

Payment Protection Program (PPP)

Update (07-07-2021): The Payment Protection Program has ended but you can read about some PPP Loan alternatives for small businesses here

Nearside has covered this government program extensively, but for those who are interested in what the CARES Act can do for them, PPP is a great option for funding if you’re trying to pay employees, and the loan forgiveness deadline is likely to be extended. However, 75% of the funding must be for payroll to qualify for loan forgiveness- at least currently. There’s some confusion about the forgiveness rate of these loans, but we’ve built an easy to use calculator to help you calculate the PPP loan and forgiveness amounts that you may be eligible to apply for.

To qualify for forgiveness, PPP funds must be mainly used for payroll costs for up to 8-weeks after the loan has been granted. If layoffs happen after those eight weeks, PPP loan forgiveness amounts will be reduced. Though it’s worth noting work is being done to allow funding to be used for masks, sneeze guards, and other sanitary expenses now that businesses are reopening in parts of the country, so keep an eye on this program as it broadens its use for small businesses, LLC, and sole proprietors. 

Even without forgiveness, the PPP is still a great loan program with favorable terms for businesses that have been affected by COVID-19. PPP loans have a two year term with a 1% fixed interest rate for the first 24 months, with the first 6 months of payments deferred Funds are delivered within ten days of approval (however some delays have been reported, so you’ll want to plan accordingly). The PPP loan covers up to 250% of your monthly payroll expenses, without your credit being a factor, and no collateral or personal guarantees required.

As an example, on a $10,000 PPP loan, you’d pay about $150 of interest at the end of 2-years, which means if you end up not needing the loan, you’ll be out $150, which is a great deal when compared to other lending options.

Working Capital Loans and Lines of Credit

The good ol’ fashioned loan is still a great option for small business owners, especially if you lean toward having  poor credit. 
Banks, startup lenders and credit unions offer different types of loans and lines of credit with some innovative repayment options. 

For a great breakdown of some of the industries top small business loans, by company, be sure to check out this handy guide from

Small-business Lines of Credit (LOCs)

For immediate funding, LOC’s are great, and owners can expect faster approval and flexible financing. This is great for everyday, recurring  expenses like stockroom supplies and bills. Borrow what you need up to your credit limit, repay what you borrow, and then borrow again, similar to personal credit.  Depending on what lenders you work with, interest rates can be as low as 1.25% (if you get a loan through the Small Business Association - SBA). Rates hover in the 7% range if you work with a more traditional bank lender such as Bank of American or Chase, etc., and from 13.99% - 90% if working with online lenders such as Kabbage or Square. Generally, funds can be available within 10 days of approval and credit scores can be as low as 300 to qualify, but be sure to check with your lender, as processes and terms will vary greatly between lenders and credit products. Finally, it’s also worth noting that depending on what types of loan or LOC products you’re interested in, there may be different requirements to securitize the loan with collateral or a personal guarantee. Be sure to ask about this before signing.

Small-business Working Capital Loans:

A working capital loan could give you the boost in your finances to help pay for immediate expenses like building leases or payroll. You’ll have to use your business assets as collateral, but working capital loans serve as a lifeline for maintaining inventory, building upkeep, payroll, or weathering seasonal lulls. Borrowers can expect funds within days of application approval. These loans offer some of the lowest annual percentage rates if processed through a bank, but your credit will need to be strong. Online lenders will take applications for those with credit in the 550 range or below, but the interest rates can vary from 11% to over 90%--so be sure to double check before you sign.

Term Loans

Unlike microloans or advances, term loans are offered by traditional banks, credit unions, and online lenders, and are great for one-time investments for your business. If you’re looking for funds for equipment or upgrades to infrastructure, term loans are a great option. However, many term loans have credit requirements, and while some go as low as 500 on their credit score preferences, if you’re towards the 300 credit score mark, a term loan may not be possible for you.

Term loans also can take 30-90 days to get funds into your pocket, which can be very hard on a small business timeline. However the interest rates are better, the repayment options more flexible, and the amounts available more substantial. If you can wait, and need to make a big purchase, this is a great option.

Small Business Payday Loans

A business payday loan – or business cash advance — is a type of short term financing available to small businesses who need cash fast. While the PPP is designed primarily for payroll, small business payday loans provide funds that can be used completely at the discretion of the small business owner. Pre-approval can be done within an hour or two with a minimal amount of personal and business financial documentation, and funds are available quickly, usually deposited within days. There are short and long term loan options, and both are deposited very quickly. 

The major drawback of a payday loan is the expense, the payback amount can be up to 150% more than the borrowed amount, and that doesn’t include any merchant fees that may be charged. Repayment generally starts quickly, stretching from  4-18 months, and often repayments are expected daily, which can strain the cash flow of your business. 


Microfinancing, also called microlending or microcredit, is a great option for business owners with poor credit or no credit, and is popular for startup financing. Most lenders don’t have strict limits on borrower credit scores, and unlike a payday cash advance, these loans are privately funded by individual lenders, so the interest rates are much more feasible. And if you’re specifically looking to improve your credit, once you repay your microloan, your score can get a boost.

But microlending has some drawbacks. The amounts available for lending are generally lower than traditional business loans (typically < $50,000 dollars), and you’ll likely pay higher interest rates (about 22%) than you would for a secured small business loan. Microloans are often administered by non-profits or organizations with particular missions and focus, generally prioritized to women and minority business owners. 

However, applications are straightforward (you might need references), approval can be as fast as a few days and the funds are deposited quickly after. 

Small business borrowers have a lot to consider when finding the right loan for their business. Different options work better for different people, and factors like price, additional fees, and short versus long term needs are important things to consider before moving forward with borrowing. There’s so much available for small business owners, but make sure you’re reading loan information thoroughly so you know any requirements for fund use, the application process length, and requirements for security and personal guarantees. Go into the process hopeful but through - no one wants to be held back by debt and every loan taken should be carefully planned. Finding the balance between interest and immediacy is key.

Use the equity in your home

Trying to get a small business off the ground floor is difficult even when you have the financial resources that can help with the process. But, when you don't have access to the typical financial resources that many business owners do, then your startup can feel like something that will never come to fruition. What you have to do is use that entrepreneurial spirit and find ways to overcome your obstacles. If you don't have great credit and you don't have a lot of money, what you need to do is get creative and find other options, and one of those options might be closer than you think.

If you own a home, even when you still owe money on the mortgage, you could use the equity in your home to obtain the cash you need to get your startup up and running. Is it risky? Yes, because you'll be taking a loan out using your home as capital. Anytime you put a major asset such as your home up as collateral in any financial transaction, it's a significant risk. But is the risk worth it? That's a question you have to ask yourself. You need to find out if you can afford a second mortgage payment, and you need to decide if this is the right choice for you.

How can you get a second mortgage or refinance your home with bad credit? It can be difficult, but since your home is being used as a guarantee for the loan, getting a second mortgage, home equity line of credit, or refinancing your mortgage can sometimes be easier than getting a traditional loan. This may not work, and if you don't own a home then obviously it isn't an option for you, but this is still a viable option for some people. 

Find partners to invest in your business

Another creative option to consider is the possibility of taking on business partners. If you have the idea and technical skills to get your startup going, and you have friends or associates that have the capital, then this could be the beginnings of a lucrative business relationship. There are two main things to remember if you decide to take on a business partner or partners:

1. Always put everything in writing. It doesn't matter if the person you are partnering with is your best friend. It doesn't matter if you trust each other implicitly. Make sure to put everything in writing. How much of the business will they own? Will they be a silent partner? If they are going to be an active partner, how much time will each of you spend working at the business each week? If they are covering the expenses, will they be paid back? How much salary will you each be paid? These are all the types of questions that should be covered and agreed upon beforehand.

2. Be transparent. Don't sugarcoat things, you need to be brutally honest. Your partner has the right to know what they are getting into. Ensure you have a solid business plan and that they understand it, and if they have any concerns that require the plan to be modified, it's always best to do this before you enter the partnership.

Creative solutions can turn your small business dream into a reality

Starting a small business is difficult in the best of circumstances, so when you're trying to do it in less than ideal financial conditions, the road can prove to be quite rocky at times. But don't use this as an excuse! Instead of seeing problems, see opportunities. Look for funding outside of normal channels if need be. If that's what it takes to help you launch your startup, then these are the sacrifices you need to make if you want your own small business.


Originally Posted: 06-03-2020

Updated On: 07-12-2022

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