How to Get a Business Loan with Bad Credit in Canada

Running a business means facing financial challenges head-on. Maybe you’ve missed a few payments during a tough season, or perhaps personal credit took a hit before you even started your company. Either way, walking into a bank with a credit score under 600 usually means walking out empty-handed.

Here’s the reality: bad credit doesn’t mean you’re out of options. Alternative lenders across Canada specialize in helping businesses access the capital they need to grow, even when traditional banks say no.

What Actually Counts as Bad Credit in Canada

Credit scores in Canada run from 300 to 900. Most traditional lenders start getting nervous when they see anything below 660. Once you drop below 560, banks typically classify you as high risk and close the door on business loans.

But here’s what matters more than that number: your business performance. Alternative lenders look at your revenue, cash flow, and business operations. They want to see that your company makes money and can handle loan payments, regardless of what happened with your credit in the past.

Business Loans Available Right Now

You have more options than most people realize. Let’s break down what’s actually available.

Merchant Cash Advances

These work differently than regular business loans. Instead of fixed monthly payments, you repay based on a percentage of your daily or weekly sales. When business is good, you pay more. When it’s slow, you pay less.

The approval process focuses on your revenue, not your credit score. Most businesses get approved within 24 hours and receive funds the same day. This makes merchant cash advances ideal for retail stores, restaurants, and service businesses that process card payments regularly.

Learn more about merchant cash advances and how they can work for your business.

Short Term Business Loans

These loans typically run from 6 to 36 months. You borrow a lump sum and repay it weekly, bi-weekly, or monthly. Interest rates for bad credit usually range from 19.9% to 34.9% APR, which is higher than prime rates but accessible when you need capital fast.

Alternative lenders approve these loans based on:

• Your monthly revenue
• How long you’ve been in business
• Your bank account activity
• Your business type and industry

Equipment Financing

Need new equipment? The equipment itself serves as collateral, which makes lenders more comfortable working with bad credit. You can borrow amounts from $3,000 up to $500,000, depending on what you’re purchasing.

This works well because the lender has security. If you can’t make payments, they can reclaim the equipment. That reduced risk means better approval odds for you.

Lines of Credit

Business lines of credit give you flexible access to funds. You only pay interest on what you actually use, and you can borrow repeatedly up to your limit. While traditional banks rarely offer these to bad credit businesses, some alternative lenders do, typically starting with lower limits around $10,000 to $50,000.

Where to Find These Business Loans

Traditional banks aren’t your only option, and honestly, they’re often not even your best option when dealing with bad credit.

Alternative Online Lenders

These companies built their entire business model around helping businesses that banks reject. They use technology to process applications faster and evaluate your business differently. Many can approve loans within hours instead of weeks.

Credit Unions

Local credit unions sometimes take a more personal approach than big banks. They might consider your relationship with them, your business plan, and your local reputation alongside your credit score.

Government Programs

The Canada Small Business Financing Program (CSBFP) helps small businesses get loans up to $1 million. Financial institutions deliver the program, and while they still check credit, the government guarantee makes them more willing to work with you. You pay a 2% registration fee, but the access to capital often makes it worthwhile.

Comparison Platforms

Rather than applying to multiple lenders individually, you can use platforms like Smarter Loans to compare offers from over 50 lenders at once. This saves time and helps you find the best rates available for your situation.

How to Actually Get Approved

Getting approved with bad credit takes preparation. You can’t just fill out an application and hope for the best.

Show Strong Cash Flow

Lenders want to see consistent revenue. You should gather your bank statements from the past 6 to 12 months. They’re looking for:

• Regular deposits from customers
• Healthy account balances
• Minimal overdrafts or NSF fees
• Growing or stable income trends

Separate Business and Personal Finances

If you’re still mixing personal and business transactions, now’s the time to stop. A dedicated business bank account shows lenders you run a professional operation. It also makes it easier for them to evaluate your business performance.

Prepare Documentation

Have these ready before applying:

• Business registration documents
• 6 to 12 months of bank statements
• Recent tax returns
• Financial statements if available
• Proof of revenue (invoices, sales reports)
• Valid government ID

Be Honest About Your Credit

Lenders will pull your credit report anyway. Rather than hoping they overlook issues, you should address them upfront. Explain what happened and what you’ve done since to improve your financial management. This builds trust and shows you’re serious about making payments on time going forward.

Consider Collateral

Offering collateral reduces the lender’s risk, which can improve your approval chances and potentially lower your interest rate. Collateral could include:

• Equipment or machinery
• Inventory
• Real estate
• Vehicles
• Accounts receivable

Understanding the True Costs

Bad credit business loans cost more than prime rate loans. That’s just the reality. Interest rates typically run between 19.9% and 34.99% APR, though some merchant cash advances work on factor rates instead of traditional interest.

Beyond interest, watch for these fees:

• Origination fees (1% to 5% of loan amount)
• Processing fees
• Registration fees for government programs
• Early repayment penalties on some loans
• Monthly maintenance fees

Before signing anything, you should calculate the total cost of the loan. A $20,000 loan at 25% APR over 24 months costs about $6,600 in interest. That’s significant, but if the loan helps you grow revenue or avoid a bigger problem, it might be worth it.

Common Mistakes That Kill Applications

Applying Everywhere at Once

Each application triggers a credit check. Multiple checks in a short period hurt your score even more. Pick two or three lenders that match your needs, then apply strategically.

Borrowing More Than You Need

Higher loan amounts mean higher payments. If you only need $15,000, don’t borrow $30,000 just because you qualify. Keep payments manageable.

Ignoring the Repayment Schedule

Can you actually afford the payments? Run the numbers based on your slowest months, not your best months. If you can handle payments during slow periods, you’ll be fine.

Skipping the Fine Print

Read the entire loan agreement. Look for prepayment penalties, automatic renewal clauses, and hidden fees. If something’s unclear, ask questions before signing.

Alternative Routes to Consider

Sometimes a traditional business loan isn’t the right answer. Other options include:

Business Grants: Free money you don’t have to repay. Highly competitive but worth researching through government and industry association programs.

Crowdfunding: Platforms like Kickstarter or GoFundMe can help raise capital while building customer interest.

Bootstrapping: Using business revenue to fund growth takes longer but avoids debt and interest costs entirely.

For personal expenses that might help your business indirectly, you can also explore bad credit personal loans as another funding avenue.

Moving Forward

Bad credit creates obstacles, but it doesn’t have to stop your business growth. Thousands of Canadian businesses secure funding every year despite credit challenges. The key is knowing where to look and how to present your application.

Start by assessing your current financial situation honestly. Review your credit report, calculate how much you actually need to borrow, and determine what you can afford to repay each month. Then explore your options through comparison platforms like Smarter Loans, where you can see offers from multiple lenders without damaging your credit score further.

The right business loan can help you purchase inventory, upgrade equipment, hire staff, or simply get through a slow season. With preparation and the right lender, your credit score becomes just one factor in the decision, not the only factor that matters.