Funding Your Small Business with Bad Credit

March 23, 2020 by First Federal Bank

A green piggy bank sits on a calculatorA low credit score is a detriment to any individual or business seeking loans, but it doesn’t entirely eliminate your financing options. FICO defines bad credit as a score between 300 and 629. If you fall within that margin, you can still fund your business in a way that gets your score back on track and opens more doors in the future.

Startup financing options

If your business is less than a year old and boasts little revenue, you will struggle to find a loan from a bank no matter your credit score, as even online lenders usually require you to have been in business for at least a year. You should look at alternate startup funding options such as a secured personal credit card.

“Studies show that credit card and bank financing account for just 25 percent of the total funding needs of early-stage entrepreneurs,” Asheesh Advani, CEO of Covester, wrote in an Entrepreneur article. In other words, there’s a good chance you can find about 75 percent of the money you need from other sources that rely less on your credit rating — or don’t rely on it at all.

Relatives and friends

You may be surprised to discover the extent to which your relatives or friends are willing to support you to help you accomplish your dreams, and the lack of necessary formality can make them easier to approach. “They also may not dwell on your poor credit score because they trust you, or they believe your business concept to be sound,” Advani says. You can even use private loans from relatives, friends and business associates to rebuild your credit score, as long as you use a loan management company to service the loan and report payments.

However, keep in mind that friends and family sometimes feel they have a right to dictate the direction of your business if they help support it. For the sake of your personal relationship, it’s important to set professional boundaries. Ultimately, the effectiveness of turning to friends and family for funding will vary on a case-by-case basis, but it’s always worth keeping in mind.


You can certainly ask your friends and family to help finance your latest venture, but what about internet users and other community members? Crowdfunding sites like GoFundMe and Kickstarter give you a platform to present your idea to the masses and then share online to your personal network. The hope is that your campaign will catch the eye of people outside of your circle to pick up more money. According to Zack Miller of The Balance Small Business, experts think that crowdfunding will grow into a $300 billion industry by the year 2025, which means there’s a lot of money to go around.

There are several types of crowdfunding, with some sites focused on rewards for your supporters (like a preorder of your product) or possibly equity in your company. Make sure you look at each option and understand the consequences before you start raising funds.

Even if your credit score is low, you still have options for funding a small business. Before taking a big step, consult a financial professional at your local institution to help determine what the best course of action would be for you.

Categories: Small Business Lending, Small Business

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