Business loans for bad credit

A poor credit history can make it harder to get a loan. If you believe your credit file is negatively affecting your loan applications, you can take steps to improve your credit rating and consider alternative lending options.

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Business loans for bad credit

What is a bad credit business loan?

A bad credit business loan enables business owners with a poor business or personal credit score to access the finance they need to trade or grow. Due to the risk involved for the lender, these loans usually come with higher interest rates. 

A business loan for bad credit can be used for any legitimate business purpose, such as paying employees’ wages, buying new equipment or improving cash flow. 

Can I get a business loan with bad credit?

Yes – even if you have bad credit, you might still be eligible for finance.

Alongside business loans for bad credit, there are various grants and government initiatives out there to help businesses survive. After all, helping a business work rather than stop trading can keep people in employment and benefits the economy.

What is a bad business credit score?

Your business credit score paints a picture of your business’ financial health and creditworthiness. The score – out of 100 – is calculated using your payment and defaults history, how much debt you have, whether you’ve come into any legal issues, the level of risk associated with your customer base, and even your sector. 

Businesses that have applied for business funding, taken out a small business loan or used a business credit card to pay a bill will have a credit rating. A history of not repaying loans on time, partially or in full, can result in a low credit score, which indicates a higher level of risk to the lender. 

Previous credit checks also show up on your credit file. If you need business debt advice, you can visit the Business Debtline charity run by the Money Advice Trust.

Will the lender look at my personal credit score?

The lender will look at your business credit score and potentially your personal one. A bad score can lead to higher interest rates and less favourable terms, or in the worst-case scenario the rejection of your loan application.

Regardless of whether you have bad business credit, you may need to offer a personal guarantee. This means you’ll have to repay the loan if your company can’t.

What could impact my business loan eligibility?

A number of things can impact your eligibility when applying for a loan. Each lender will have its own criteria, however the following factors are potential ‘red flags’:

Business CCJs: Lenders take into account how many CCJs you have, their value and the frequency at which you have received them.

Trading history: Some lenders deem businesses with no or a short trading history as too risky to lend to. 

Winding Up Orders: If you’ve been subject to a Winding Up Order in the past (even if it was rejected), this could affect your finance applications.

Visible financial performance: Lenders may also look at public data about your company. Even if you don’t believe the information is correct, some of the more traditional lenders will make assumptions based on your net worth and whether or not you hold a healthy amount of cash in your business.

Director’s history: Failed or underperforming businesses with a common directorship could influence the way lenders perceive your business.

People behind the business: A personal history of IVAs, debt management plans (or anything) similar could impact your ability to get finance.

Multiple loan applications: It’s also important to remember not to apply for several loans, as this will further tarnish your credit score.

What are the loan options for a business with bad credit?

If your business is willing to offer business assets as collateral, such as a premises or machinery, a secured business loan might be worth exploring. If approved, the lender could agree to lend you money to a ratio of the value of the asset you put forward. 

Although there’s no guarantee that you’ll be approved, unsecured business finance, such as a merchant cash advance, could be another option. Unsecured finance options tend to come with higher interest rates, and you or another director in the business will have to cover missed loan payments if your business defaults.

Peer-to-peer (P2P) lending is another route. You’ll be expected to provide details of your turnover, profit and loss accounts, and have a12-month trading history. 

As a business with poor credit, you’ll need a robust business plan with convincing cash flow projections. If you pass the acceptance criteria investors will be able to offer small amounts that – in total – could meet your target borrowing amount.

Business credit cards for bad credit are also on the market, and might help you to avoid paying very high interest rates. Paying back your credit card in full every month is a great way to rebuild your credit history. Your credit limit is likely to be low at first ( <£1,000), and the APR will be high. 

Bad credit business loans pros and cons 

As with any form of business finance, loans for businesses with bad credit have their advantages and disadvantages. Here are some of the main things to consider:


  • Access to much-needed business finance

  • The ability to spend the funding on what your business needs

  • If you meet the repayment terms, it can improve your credit rating


  • You may be eligible for a smaller loan amount

  • Bad credit loans tend to be more expensive because of higher interest rates

  • You might have fewer options available to you

How can I improve my credit score?

It’s advisable to start improving your credit before accumulating more debt. Here are six key steps you can take to improve your business credit score.

1. Audit your credit report 

Review credit reports regularly to identify errors or fraud. Credit reports are created by credit reference agencies. Lending data is used to inform your credit report and you’ll receive a score which reflects the chances of you being able to repay a loan. 

2. Repay debts on time

Failing to pay back loans or credit cards on time can hurt your business credit score. Credit agencies who supply the credit rating will have visibility into your business's financial history, including any default payments and CCJs. 

3. Limit credit applications

Remember that every credit application you make will be visible on your credit report. In other words, when a lender rejects your application, it could harm your credit score. This includes credit card applications too.

4. Keep information consistent 

Inform Companies House, directors, suppliers and credit agencies if your business moves address or changes status – failing to do so can result in inconsistent information which could make your business appear riskier to lenders. 

5. File your accounts on time

Stay organised when it comes to accounting. For example, filing your accounts late with HMRC could indicate financial problems and affect your credit rating. 

6. Keep up-to-date with invoices

Failing to pay your suppliers on time could also negatively impact your credit score. Paying promptly will help you to maintain a good reputation with suppliers and avoid encountering issues which could ultimately bring down your business credit score. 

Apply for a business loan for bad credit today

Funding Options helps UK firms – including those with bad credit – to access business finance. We work with over 120 lenders, matching you with options that align with your business’s circumstances and goals. Use Funding Options to see what your business could be eligible for today, without affecting your credit score. 

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Joe Morley
Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.

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