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Small Business Loans for Women with Bad Credit

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Lauren Ward

Lauren Ward

Updated November 6, 2020
Small Business Loans for Women with Bad Credit
Women-owned businesses in the U.S. account for $1.7 trillion in sales and provide jobs for more than 9 million employees. All businesses need to start somewhere, and while a good credit score may seem like a must-have to launch your company, there are many financing options available for all credit types. Find out what lenders typically look for in an application and tips for finding small business loans for women with bad credit to fit your company’s needs.

What are Lenders Looking for on Business Loan Applications?

No matter what type of financing you’re looking for to support your company, lenders and creditors want to minimize their risk as much as possible. To evaluate your creditworthiness as a potential borrower, lenders will generally evaluate factors including: 
  • Your personal credit score, especially if your business is new. 
  • Whether or not you are able to offer collateral on the loan, which could be business or personal assets that they can take if you default on the loan.
  • Your balance sheet and other financial statements so that they can evaluate your businesses’ financials and cash flow.
You may also have better luck qualifying for a loan if you’ve been in business for at least two years, which is the minimum requirement for some Small Business Association (SBA) loans. But there are still business startup loans for women with bad credit available, although the terms may be less favorable.

What is Bad Credit?

For personal credit scores, FICO® Scores below 669 are generally considered either fair or bad. VantageScore, another scoring model used by lenders, considers scores between 500 and 600 poor, and scores between 300 and 499 very poor. Business credit scores are set on a different scale. There are three bureaus that determine a businesses credit scores, each has a slightly different scale. 
  • Experian’s Intelliscore Plus—scores on this scale run from 1 to 100. Higher scores indicate a better credit score. Scores between 50 and 1 indicate that an applicant may be a lending risk. 
  • Dun & Bradstreet PAYDEX—Scores also range from 1 to 100, with a higher score being preferable to lenders. Generally, a score between 1 and 49 is considered bad. 
  • FICO SBSS—Scores can range anywhere from to 300, again with higher scores being favorable. Generally a score below 140 is considered bad. 
Note that these estimates can provide a guide for how credit scores may be perceived, each lender will usually have their own lending criteria and their thresholds for credit scores may vary.

Types of Business Financing to Consider

When searching for a small business loan, there are a variety of options to consider. Note however, that while it is  possible to secure a business loan with less-than-stellar credit, it can be difficult. Here are a few options that may be available to you. Some are targeted at small business owners at different stages and some are also targeted to women-run companies.

Loans from Online Loans

Online lenders often have less stringent eligibility requirements for small business owners than traditional lenders like banks or credit unions, but do come with both pros and cons. On the plus side, if approved, you can typically access fast funding times. The application process is also typically much less involved compared to traditional bank business loans. If you’re a woman ready to launch a new business or expand an existing one, it may be possible to be approved for a business loan with an online lender, even with a less than ideal credit score.There are, of course, pitfalls when applying for this type of bad credit business loan. The first is the interest rate. The higher risk your application, the more you’re likely to pay in interest, which can make this an expensive option for financing. The other thing to look for in the loan terms is whether any collateral or lien will be required for the loan. Some online lenders may place a lien on your business. Some may even require a personal guarantee, which puts your own assets and credit at risk if you can’t repay the loan.

Business Credit Cards

Another option, depending on your funding needs, you may be able to qualify for a business credit card, even with bad credit. Depending on your credit score, you may need to start off with a secured credit card, which requires a cash deposit. This may not help you access working capital right away, but it could potentially help build or rebuild your credit score. You may be more likely to qualify for an unsecured business credit card if you can get your credit score into the “fair” category (typically viewed as a FICO® Score 580 to 669), but, again, different creditors will have different criteria. If you do opt for a business credit card, make sure you understand all of the fees involved, as some may come with a high APR (especially with a lower credit score), and may also have a hefty annual fee.

Merchant Cash Advances

Merchant cash advances can be an option to consider if your business is already serving customers who pay using credit or debit card transactions but your credit isn’t ideal. You receive a lump sum as you would with a loan, but instead of making fixed payments, the lender takes a percentage of your credit card transactions each day as payment. Instead of being charged an interest rate, a factor rate is added to the amount you borrow. It’s typically a large amount compared to what you could get with a loan APR. On top of that, there’s no option for early payoff. You owe the full amount regardless of how long it takes you to pay it back. Merchant cash advances also aren’t subject to the same financial regulations as traditional loans, which can lead to unsavory lending practices. 

SBA Loans

Government small business loans for women with bad credit can be difficult to get from the U.S. Small Business Association (SBA). Some  SBA loan programs require at least a 640 credit score. As a startup, you may be able to apply for an SBA microloan with a 620 credit score. The maximum loan amount in the program is $50,000 while the average loan amount is $13,000. SBA loans are guaranteed by the federal government, but you’ll work with a third party lender to actually apply for the loan and receive funds if approved.

Grants for Women Small Business Owners

In addition to small business financing, consider applying for grants that are specifically designed to help women entrepreneurs launch or grow their companies. Grants.gov is one place to start, with plenty of options to filter search results and find opportunities that apply to you. Also explore private foundations that focus on women business owners and any state or local resources that may be available. 

Business Credit vs. Personal Credit

Start up business loans for women with bad credit may come with high rates and more restrictions than those financing options available to individuals with a higher credit score (among other financial factors that vary by lender), but if you are short on options, they can be used as a way to establish business credit. Building a strong business credit history could potentially set you up to qualify for better financing opportunities in the future. As your business credit history grows, you can hopefully rely less on your personal credit score.  A first step to building a business credit profile for your new company is to properly incorporate the business and open up separate bank accounts from your personal use. While credit bureaus automatically track your personal credit score, you may need to manually establish a business credit profile with the major players: Equifax, Experian, and Dun & Bradstreet.As you start to borrow money for your business, try to make all of your payments on time. It’s one of the biggest components of your personal credit score and your business credit score is no different. Also be sure to pay your vendors on time. Even if it’s not a loan transaction, some vendors do report payments to the credit bureaus. If you’re very adamant about building your business credit score, you could even ask larger vendors to report your on-time payments.  

Finding Financing Options for Your Business

The number of women business owners has grown substantially in recent years, encompassing 42% of all U.S. businesses. With the right type of financing, it is possible to overcome hurdles like bad credit and little startup funds and still get your company launched. Just review all of your options and weigh both the pros and the cons to lower the cost and the risk involved.Ready to build your empire? Explore small business loans through Lantern Credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans) No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC20031

Frequently Asked Questions

Is it possible to get a business loan with bad credit and no money?
Can you get an SBA loan with bad credit?
Do lenders look at personal credit?
Are there resources for women owned businesses?

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.