Every business owner knows that access to funding can make or break opportunities. Normally, it is covering day-to-day costs, investing in new equipment, or managing a quiet season, finance plays a big role in keeping a business moving forward. But what happens if your credit history isn’t perfect?
Bad credit can feel like a closed door, especially when traditional banks are quick to turn away applicants with low scores. The reality, however, is different. Many lenders now look beyond credit reports and consider the bigger picture — your revenue, your assets, and the strength of your business.
The idea that “bad credit means no loans” is one of the biggest myths in business finance. Thousands of UK businesses face the same struggle every year, and many of them still find ways to secure the funding they need. Having bad credit doesn’t automatically mean the door to business loans is shut. In fact, an entire sector of lenders now exists to support businesses in exactly this situation.
What Is Bad Credit in Business?
Bad credit means you or your business have a history of missing payments, taking on too much debt, or struggling to manage credit agreements in the past. These issues get recorded on your credit file and affect your credit score.
For business owners, bad credit can show up in two ways:
- Personal bad credit – If you’re a sole trader or have given a personal guarantee on a loan, lenders will often check your personal credit score. Late credit card payments, overdrafts, or unpaid bills can all count against you.
- Business bad credit – If your company has borrowed before and failed to keep up with repayments, it can build a negative credit history in the business’s name.
Credit scores give lenders a quick snapshot of how risky it might be to lend money to you. A high score suggests reliability, while a low score raises red flags. That said, lenders don’t rely on scores alone. Many will also look at your business’s trading history, income, and overall financial health before making a decision.
Bad credit doesn’t define your business forever. It’s simply a signal that there have been challenges in the past and you just need to increase your credit score in a strategic way, most likely just tight control of your finances.
Can You Get a Business Loan with Bad Credit?
Yes, although your options will be different than those with ideal credit scores because lenders will see you as a risky transactions so they would add more interest to your future payments.
Traditional bank and as well as top lenders have strict requirements, with a low credit score, it can be even more difficult to get approved. They will heavily banks rely on your credit score. Even though you can still get approved doesn’t mean your chances of getting rejected isn’t high. So always expect to get rejected although this might feel discouraging rather than expecting to get approved even though you know it is very difficult.
There are however, many alternative and specialist lenders have stepped in because this has created a demand. These lenders take a broader view of your situation. Instead of judging your application solely on credit history, they may look at factors like:
- How much revenue your business brings in each month.
- The stability of your cash flow.
- The assets you can use as security.
- The overall health and potential of your business.
You may have a low credit score for now but that is not the only indicator that you are struggling. There are other angles that these lenders take a look at.
Types of Business Finance Available with Bad Credit
Knowing your credit history isn’t perfect, you might not qualify for every loan on the market, but there are still several types of finance you can explore. Some are designed with bad credit borrowers in mind, giving you the flexibility to access funds when you need them most.
- Secured Business Loans
These loans require you to put up an asset, such as property, vehicles, or equipment, as security. Because the lender has something to fall back on if repayments are missed, they’re often more willing to approve applications from businesses with poor credit. - Merchant Cash Advances
This option works by borrowing against your future card sales. The lender takes a percentage of each transaction until the loan is repaid. Since repayments are tied to your actual sales, approval doesn’t rely heavily on credit scores. - Invoice Financing
Most of the time, businesses are struggling to keep on paying on time all because of customer invoices that are being paid on a long wait. Sure, you can anticipate when the customer will pay but is it really enough. You can trade your invoices for a quick cash to pay your much needed expenses and to stay afloat. - Guarantor Loans
In this case, someone with stronger credit agrees to back your loan. If you can’t make repayments, the guarantor is responsible. This lowers the lender’s risk and can open doors to funding that may otherwise be closed. - Alternative and Online Lenders
Unlike traditional banks, many online lenders specialise in supporting businesses with imperfect credit. They may offer smaller loans, shorter repayment terms, or flexible products designed to match your cash flow. - Crowdfunding
Raise money usings other people’s donations by sharing them your business plan. You can utilize GoFundMe and tell people of your business. - Peer-to-Peer Lending
Online platforms like Prosper connect you with private investors and you can get funds in a day. - Government Grants and Schemes
Some grants are designed to support small businesses and don’t need to be repaid, but it will be very difficult since there are a lot of businesses trying to acquire government grants. - Supplier Credit
Negotiating longer payment terms with your suppliers can free up more money without needing to borrow from a lender. - Support from Family or Friends
Some business owners turn to their personal network for short-term help. If you go this route, it’s best to set clear terms to avoid misunderstandings.
How to Improve Your Chances of Approval
Keep your financial records organized because this will indicate that you are really keen on keeping track of your finances but you just need a little bit of financial help. You can also apply for a smaller loan first and then paying them off on time which help build trust for lenders and banks once everything is paid off. Another thing to consider would be to cut your expenses. Don’t pay for things that are not really needed but only focus on the things that you actually need.
What Types of Loans Are Easiest to Get Approved For?
If your business has bad credit, certain loan types are more accessible due to their flexible criteria and focus on business performance over credit scores. Here are some options to consider:
Merchant Cash Advances (MCAs)
MCAs are ideal for businesses with consistent card sales. Lenders assess your daily card transactions rather than your credit score, making them accessible even with poor credit. Repayments are automatically deducted as a percentage of your daily card sales, aligning with your cash flow.
Unsecured Business Loans
Some lenders offer unsecured loans to businesses with bad credit, typically requiring a personal guarantee. These loans can range from £1,000 to £500,000, with interest rates between 6% to over 15% APR.
Invoice Financing
If your business issues invoices with extended payment terms, invoice financing allows you to borrow against outstanding invoices. This option provides quick access to cash without relying on your credit score.
Which Lenders Are More Likely to Approve Bad Credit Loans?
If your business has a poor credit history, securing financing can be challenging with traditional banks. However, several UK-based lenders specialise in providing loans to businesses with bad credit by focusing on factors such as cash flow, revenue, and overall business performance.
- 365 Finance
365 Finance offers unsecured merchant cash advances ranging from £10,000 to £400,000. They assess your business based on recent card transactions and apply a soft credit check, meaning your credit score won’t be impacted. This approach makes them a viable option for businesses with adverse credit histories. - JPM Capital
JPM Capital provides unsecured business loans between £5,000 and £50,000. While they acknowledge the higher risk associated with lending to businesses with bad credit, they offer competitive interest rates ranging from 2% to 2.5% per month. Their focus is on the business’s current performance rather than solely on credit history. - SME Loans
SME Loans works with a panel of lenders who consider all credit scores, basing their decisions on your business’s performance. They offer loans ranging from £1,000 to £500,000 and may require a personal guarantee or a guarantor, especially for larger loan amounts. - Funding Options by Tide
Funding Options by Tide connects businesses with over 80 UK lenders, including high street banks and alternative finance providers. They offer a range of financing options, such as invoice financing, merchant cash advances, and short-term loans, catering to businesses with poor credit histories. - Capify
Capify provides bad credit business loans to businesses in need of fast funding. They assess each application individually, considering the business’s current financial situation and performance, rather than relying solely on credit scores.
Will I Have to Put Up Business Assets as Security?
No, there are options like merchant cash advances, invoice financing, and unsecured business loans that focus more on your current business financial standing rather than your credit score. Although putting up your assets will help raise your chances to get approved but you should be careful in which assets to use as collateral.
You can use property, vehicles, equipment, machinery, or any other asset that holds value to the lenders as collateral. Only use them if you are willing to lose them but try your best to pay on time.
How Much More Interest Will I Pay?
Lenders will obviously see you as a risky transaction because they already know you are struggling previously with payments so naturally they will give you higher interest rates. All to protect their interest and make money, that is just how it is.
For UK bad credit business loans, interest rates can vary widely depending on the lender, loan type, and repayment terms. Some unsecured loans or merchant cash advances may have monthly rates between 2% and 2.5%, while secured loans might offer slightly lower rates if collateral is provided.
It’s important to compare lenders carefully, factoring in total repayment amounts, fees, and terms. Even small differences in rates can make a significant difference over the life of the loan, so planning your budget and repayment schedule is essential to avoid financial strain.
Can Taking Out a Loan Improve My Credit?
Yes, taking out a loan to improve your credit is a good idea only if the repayments are done on time. This will allow you to show a good credit standing over time if bills are continued to be paid properly without delay. Only borrow what you can afford.
It also opens doors to better financing options in the future if and only if are responsible in paying these loans. All of these are true in personal and business loans, so make consistent payments, and you as an individual and business owner at the same time will achieve your desired credit score in no time.
What Documents Do I Need to Prepare?
- Recent bank statements showing cash flow.
- Accounts or management accounts for the last 1–3 years.
- Tax returns for the business and, if required, for the director(s).
- Invoices or proof of outstanding payments, if applying for invoice financing.
- A business plan or cash flow forecast, especially for newer businesses.
Does No Credit History Count as Bad Credit?
Not having credit is not the same with having bad credit, in fact, having bad credit is actually better for lenders because they can have an insight of your previous credit history which will be used for assessment. However, no credit history means that lenders don’t have any way of assessing your previous expenses thus making it harder for people without credit history to get approved.
People without credit history will get disapproved most of the time but they will have to start somewhere and that somewher is usually at the very bottom or very beginning of credit history which means start small.
Can I Apply Again After Being Rejected?
Yes, you can reapply but not immediately after rejection. You should wait for 6 months before applying again for the same company but instead you must find out first what made them reject your application in the first place. Persistent application is not ideal not just in lending institutions and firms but in general. This gives a negative impression on their part.
Take steps to improve your credit score and when the time comes when you think you are better financially then you can reapply especially if the 6th month period has elapsed. However, if there are errors in the reports as to why you got rejected, raise your concern and you might get a different result in your application.
