Bad Credit Business Financing


Bad credit in businesses is a result of previous failures to make payments to creditors on time as agreed upon. These creditors can include banks from which they borrowed loans from, suppliers from where they bought inventory, utility companies which provide water, electricity etc. and/or others. These creditors all report payment histories and patterns to credit bureaus (Equifax, TransUnion, Experian etc.), which then assign the business a credit score between 0 and 100. When seeking to raise capital, businesses with poor credit scores have a comparably more difficult task convincing lenders than businesses with good credit.

Why is it hard to get a bad credit business loan for a small business?

When assessing applications for credit loans, lending companies look at the credit score as the first starting point. Credit histories and scores are more than just an indication of the borrower’s past repayment patterns. They provide the lender with an idea of the borrower’s financial strength and willingness to repay debt. If the credit score is below their preferred threshold, that represents an outsized level of risk that they are not always authorized to take. In this scenario, the business owner’s application may not qualify for approval.

How do I get a business loan with bad credit? What are the options?

For small businesses with bad credit history, there are multiple options that can be pursued if a bank loan is not a feasible route. Depending on the company’s financial profile and whether you are looking for small business start-up loans, quick loans, microbusiness loans, and/or business acquisition loans, one or more of these options may be the optimal choice forward:

Merchant Cash Advance

Merchant Cash Advance

The Merchant Cash Advance is an upfront cash payment advanced by a lender to the business based on the company’s card sales volume in lieu of credit scores. With a MCA, the principal amount is automatically repaid over time by a fixed percentage of future card sales being remitted directly to the lender.

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Microbusiness Loans

Microbusiness Loans

Depending on whether your business qualifies as a micro-enterprise, micro lenders (and special microcredit programs from the government) might be available to you as an owner. These loans are smaller and generally have less restrictive requirements to raise the level of capital needed.

Business Collateral Loans

Business Collateral Loans

One of the best ways to bypass low credit scores is to put up a fixed asset as collateral with a lender. Once the asset’s valuation is appraised, the lender can then gain additional comfort in the knowledge that in the event of default, they can recoup their capital via sale of the asset.

Government Loans

Government Loans

 In Ontario and across Canada, the Small Business Financing Program (SBFP) is a government-backed entity that shares the risk of loans with lenders. While lenders provide and administer the loan, the SBFP steps in and guarantees fixed portions of unpaid debt in the event of default. This helps lenders become more willing to lend to slightly riskier credit candidates.

Private Loans

Private Loans

While these loans are provided based on credit score, they are still a viable option for businesses with poor credit. In this type of loan, the structure is the same as a conventional term loan from a bank where the cash is advanced to the borrower upfront. However, instead of monthly repayments, the repayment for a private loan occurs on a daily basis. This reduced the risk for the lender, meaning that the credit score doesn’t become as big of a factor in the qualifying decision.

Equity Line of Credit

Equity Line of Credit

This is particularly useful if the business in question has a poor credit score, but a lot of equity on its financial statements. Using the equity as collateral, businesses can obtain a cash advance and pay back at regular intervals just like a bank term loan. However, in the event of default, the lender would have a claim on the business and can sell it to recoup their capital.


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Alternative Lenders

Alternative Lenders

 In certain cases, businesses may need access to quick funding, but may not have the credit score requirements to obtain a revolving credit facility from a financial institution. It is here that the alternative lending can be an option as it enables businesses to gain cash quickly and with minimal requirements. The downside to this though is that alternative lenders often charge higher rates to compensate themselves for the greater levels of risk that they are undertaking.

How to rebuild credit?

As noted above, poor credit can represent challenges to business financing. However, this doesn’t have to be a permanent feature of your business. With the right strategies and money management practices, bad credit can be reversed. A few key strategies are listed below:


  • Make payments on time: This is without a doubt the most important step in repairing low credit. Non-repayment has repercussions not just on credit scores, but also on relationships with creditors. However, a pattern of consistent debt repayment shows fiscal responsibility. In a month where this isn’t possible, pay off the largest invoices first as some credit agencies have a dollar-weighted methodology to calculating credit score.


  • Negotiate better terms with creditors: If the business needs a certain level of working capital and/or cannot afford to service creditor payments on time, then negotiating longer loan terms with creditors can help in ensuring that the credit score is not impacted in the near term until the business has the funds required.


  • Lower Utilization Rates: If the business has a revolving credit facility or business credit cards, then the utilization rates of these facilities are a major factor in determining credit scores. The higher the utilization rates for extended periods of time, the more risky the business is considered to be as a credit candidate.


  • Negotiate payment terms on past-due accounts: If any accounts are past their due date, contact the creditor involved and negotiate a deal with them to restructure the debt. This may not always work, but when it does, it gives the business a chance to start with a reasonably clean slate.


  • Don’t mix personal with business: While it is not all that uncommon for sole proprietors to charge personal expenses on business accounts, this could be a roadblock when looking to rebuild credit. Keep personal and business expenses separate, so creditor repayment becomes that much easier to handle.


  • Get a loan: While this may sound unintuitive, getting a loan that you can easily make the repayments for can show that the business is willing and capable of repayment, which then translates into better credit scores over time. A disclaimer here is that the situation may be different for different businesses. If the business is already highly leveraged, adding an extra loan is not a good option. It is also better to seek a secured loan if possible when looking to rebuild credit. 

Bad Credit Business Loans FAQ

1. Can you get a small business loan with bad credit?

Yes, it is certainly possible to get a small business loan even with bad credit, but it will be considerably more challenging. That said though, it is important to weigh the options listed in this article with the business’s individual needs and objectives. Additionally, you can confide in our Top Bad Credit Business Loans Providers in Canada. 


2. Are certain industries viewed less favourably in bad credit loan applications?

Yes, industries that have a high capital expenditure requirement and intense competition generally are regarded to be riskier than others. Bearing this in mind, it could be a good idea to obtain a MCA instead of a loan.


3. What does a lender want to see before advancing a bad credit loan?

Lenders will certainly want to see the business’s registration documentation and the owner’s ID. Depending on the lender and the type of loan, a credit score/history, strategic plan, financial statements, and projections may also be requested.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.