How to Get a Business Loan with a Bad Credit Score


The first time you apply for credit, a credit bureau begins to collect information (negative and positive) on how you manage that credit. Your ability to use that credit is graded using a credit score which can be found on your credit report. A credit score of 650 or less is considered low or bad. With a low credit score, lenders see you as a risky borrower, which affects how much money you can borrow and at what rate. Credit utilization is one of the main factors that impacts your credit score. In this situation, some of your business financing options are a Merchant Cash Advance or a Term Loan. By using either one of these products, you can receive business financing, without impacting your personal credit score.

Bad credit business financing options

Save your credit utilization!

Merchant Cash Advance (MCA) is one of the easiest ways to ensure that your credit utilization stays low. Fill out this form to find out how much you can borrow.

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Your borrowing options are very limited as a business owner when your credit score is considered bad. For small business owners, the most common reason for a bad credit is credit utilization. Credit utilization is the percentage of your available credit that you are using.

As a business owner, you want to put all the money you can access into your business. This leaves you with maxed out credit cards on a monthly basis. You are able to pay them back, but at any given time, all of your credit cards are utilized. Even though you aren’t doing bad, the credit bureau sees this as bad credit utilization. The FCAC recommends keeping your credit utilization under 35%, which is just not realistic for a small business owner. Which results in a lower credit score in comparison to non-business owners.


Let’s do the math!

For example, if you have a credit card with a credit limit of $10,000 and a line of credit with a limit of $10,000, your available credit is $20,000. If you have used $7,000, that is 35% credit utilization. FCAC recommends keeping credit utilization at or lower than 35% to keep a good credit score.


According to the Financial Consumer Agency of Canada (FCAC) negative information on your credit report stay for as long as 6 years, it’s very important to know your options when it comes to financing. Since most businesses need financing to either keep going or growing, going 6 years without any, can be detrimental for any business. So the alternative is to receive business financing that doesn’t rely completely on your credit score and also doesn’t diminish it further.

1. Using a Merchant Cash Advance to receive business financing

A Merchant Cash Advance allows a small business owner to use their daily revenues to get business financing. Unlike traditional loans, your eligibility for borrowing is not completely determined by your credit score. It also doesn’t require any upfront collateral. With an MCA, the lender takes a portion of your daily plastic (debit and credit) sales to ensure that payments are submitted on time. MCAs are ideal for a business owner that has a bad credit history due to credit utilization rather than missed payments, to keep a steady stream of financing going. Since this is a completely digital solution, there is no risk of bounced cheques or missed payments.

2. Getting a Term Loan  to free up credit utilization

A term loan is best for larger projects when you need to borrow more money than a retail merchant advance can offer. The term loan can be used to free up some credit utilization and bridge the gaps in cash flow since it’s not considered to be a type of revolving loan. Once your credit score improves (takes approximately 6 months), you’ll have paid off this loan and can likely borrow at a cheaper rate with the big banks. The criteria for a term loan are easy to meet with private lenders since they charge you a premium for being a risky borrower to offset their risk. However, this can be seen a small price to pay in the long term to boost your credit score and setting yourself up for cheaper financing in the future.


Revolving loans are products for which there is no specific deadline to repay the entire principal balance.  However, the minimum payment must be paid by the required deadline in each case. Term loans have a fixed deadline, therefore they are not part of the credit utilization equation. This means that you can use the borrowed amount to pay off credit cards, boosting your credit score!


A small business owner’s credit score can become bad very quickly. Since business owners are almost always maxing out their credit utilization in order to operate a business, their credit scores tank. Luckily, there are financing options available for business owners that have bad personal credit. A merchant cash advance can be ideal for a small business owner to borrow a large sum in a short time using their credit card sales, which can be conveniently paid back in small bite-sized portions daily. A term loan can be borrowed and leveraged to decrease credit utilization, just long enough to boost your credit score.