Best Small Business Funding Sources for Startups with Low Credit Scores

Launching a small business is both an opportunity and a challenge. A solid business plan, a checking or business bank account, and a clear vision positions you for growth. However, accessing capital can be difficult, especially when personal or business credit is less than ideal. For many entrepreneurs, ambition or capability is not the greatest obstacle but securing the right financing is. That's why understanding the best small business funding sources is essential for long-term growth

Even with a low credit score, limited creditworthiness, or modest annual revenue, startups still have viable paths to obtain capital. Several financing options including SBA microloans, community lenders, online lending platforms, and business credit cards, are designed specifically to help small business owners with weak or developing credit histories.

This article explores some of the best small business funding options for startups with low credit scores. It also explains how lenders evaluate creditworthiness, what makes the easiest business loan to get, and how entrepreneurs can gradually improve eligibility for the best working capital loans for small business and other long-term funding programs.

Understanding How Credit Scores Affect Startup Funding

Credit scores are important to lenders because they convey risk. When looking for the best small business funding, whether you're applying for a term loan, business line of credit, equipment financing, or even business credit cards, lenders look at your credit score to estimate your ability to repay. That means not only your personal credit (often your FICO score) but sometimes your business credit history if you have one.

When your score is low, it is difficult to pass the eligibility criteria of the best small business funding options. Traditional banks may decline your application or offer high interest rates and short repayment terms. But that doesn't mean you're out of options because lenders look at more than just your credit score. Some of the best small business funding lenders also consider:  

• Your business plan and how realistic it is
• Your projected cash flow and monthly payments
• Collateral or a co-signer
• Your business bank account and how stable your deposits are
• The type of business lending you're seeking (microloans, online lenders, equipment loans, etc.)

For instance, the Small Business Administration (SBA) Microloan Program allows startups with modest credit profiles to borrow up to a certain amount. The loans that offer this kind of flexibility are some of the best small business funding avenues for entrepreneurs who haven't yet built strong business credit.

It's important to separate personal credit from business credit. If you're just starting, you may rely heavily on personal credit. However, as you grow building business credit becomes essential so you can access better terms, revolving credit, and lower interest rates. The sooner you build your credit, the stronger your chances of qualifying for the best small business funding options.

SBA Microloans and Community Advantage Loans

One of the best small business funding options for startups and small business owners with lower credit scores is the SBA microloan program. These are small-scale loans backed by the federal government, aimed at helping new businesses.

SBA Microloans:

Nonprofit lenders partner with the SBA to offer SBA microloans. As the name suggests, these loans are for a smaller capital. These loans help designed to help startups manage working capital and cover expenses like inventory, equipment, or supplies. However, these loans do not help startups with real estate expenses.

For new entrepreneurs who may not qualify for bigger loans due to lower credit, SBA microloan is one of the best small business funding options if they do not need a larger capital.

SBA Community Advantage / other SBA flexible programs:

While the microloan program is more clearly defined, the SBA, through its network of SBA-approved lenders, also offers other loan programs (like 7(a) and 504) that may be more accessible to borrowers with weaker credit if they meet other criteria. According to the SBA's own Capital Impact Report, in FY 2024 they supported over 103,000 financings for small business owners, driven heavily by smaller loans.

While traditional banks may be more selective, SBA-backed programs can provide flexible funding options for eligible startups. Borrowers with less-than-perfect credit can still succeed if they present a strong business plan, clear cash-flow projections, and show how the loan will help the business grow.

Community Development Financial Institutions (CDFIs)

Another powerful yet sometimes overlooked channel for entrepreneurs with lower credit scores is the world of Community Development Financial Institutions Fund (CDFIs). These are mission-driven lenders that focus on underserved and low-income markets. They often evaluate your business beyond just a credit score and look at the potential and community impact of your venture.

Why CDFIs often make sense for bad-credit or low-credit borrowers:

• They focus on “creditworthiness plus” rather than only on past credit performance. Cash-flow, business plan, and local impact matter.
• Their loan amounts may be modest, meaning they fit startups or small business owners needing working capital rather than massive real-estate loans.

Because they serve underserved markets and have flexibility around underwriting, CDFIs often offer some of the easiest business loans to get when you have bad credit, limited history, or you're starting up. For new businesses looking for working capital, these institutions can be a smart part of the funding mix when shopping for the best small business funding.

Online Lenders and Fintech Platforms

In recent years, online lenders and fintech platforms have changed how small business financing works. They offer some of the best small business funding solutions for businesses with  less-than-perfect credit. These lenders operate differently from traditional banks: they use digital underwriting, cash-flow analytics, and alternative data. That makes them relevant for startups with lower credit scores.

What to know about online lenders:

• Funding decisions tends to be faster.
• They are flexible about credit score requirements; they may weigh recent bank deposits, business revenue, or online sales instead of just a credit score.
• Typical loan types include term loans (lump sum), business lines of credit (revolving credit), and invoice financing/factoring.
• On the flip side: Higher interest rates (or higher annual percentage rates), shorter repayment terms, and more cost risk if cash flow is uneven.

For new small business owners with limited credit, online lenders can be one of the best small business funding options to secure working capital. Further, this positions you better to access the best working capital loans for small business down the road. It is important to read the terms carefully: interest rates, prepayment penalties, monthly payments, and fees vary widely.

Business Credit Cards and Secured Credit Lines

For many small business owners and startups, especially those with bad credit or a short track-record, business credit cards and secured credit lines are worth considering. They may not feel like large funding amounts, but they serve a very important role: building creditworthiness and giving you access to revolving credit.

How this works:

• A business credit card gives you a credit line (revolving credit) and if you use and repay it responsibly, you build your business credit and personal credit profile.
• Secured business cards work if you provide a deposit; they are easier to get if you have limited personal or business credit history.
• Using a business credit card for smaller purchases ensures you can pay it off monthly, keep your utilization low, and show consistent on-time payments.

Responsible use of business credit cards can strengthen your eligibility for new small business loans and larger term loans with better rates

Equipment Financing and Vendor Credit

If your business needs to purchase equipment, machinery, vehicles, or other tangible assets, equipment financing is an important category. Because the equipment itself serves as collateral, lenders may be willing to extend credit even when your credit score is less than perfect. This is one of the best small business funding solutions for owners looking for a loan to buy equipment.

For a startup business with bad credit, equipment loans may be among the more accessible loan options, because the collateral lowers the barrier of creditworthiness. When you pair this with a robust business plan showing how the equipment will boost cash flow, you increase your odds of getting the financing you need.

Although equipment loans may not be the first thing people think of when searching for the best small business funding, they can be a very strategic piece of your funding puzzle, especially when your business has clear equipment-intensive needs.

Merchant Cash Advances (MCAs) and Invoice Financing

When you need short-term cash flow relief rather than long-term capital, two more options emerge: merchant cash advances (MCAs) and invoice financing (also called invoice factoring). These are not always the best long-term solutions, but they can be useful in tight moments for startups and small business owners with less-than-ideal credit.

Merchant Cash Advances:

• The lender gives you a lump sum based on your future sales. Then you repay via a fixed percentage of your daily credit/debit card receipts or bank deposits.
• Approval is often relatively fast, but cost is high (factor rates, high APR equivalents). Realtors often use this for very short-term cash needs.
• Because of the cost and repayment structure, MCAs should be used cautiously and only when you have steady sales.

Invoice Financing / Factoring:

• If your business sends invoices to customers and those invoices are unpaid, invoice financing allows you to advance a portion (e.g., up to 85%) of the invoice value now. You then repay when your customer pays or via automatic draw.
• It improves your cash flow and may help you manage operating expenses or payroll during startup stages.
• Rates tend to be higher than standard term loans; lender underwriting focuses more on your customer's creditworthiness than your own credit score.

These options can help you bridge cash-flow gaps and keep your business moving when other lenders might deny you based solely on your credit score. They are part of the broader landscape of best small business funding when leveraged wisely. However, they are not a substitute for building long-term credit eligibility.

Final Thoughts

Securing the best small business funding with a low credit score is possible with preparation and strategy. Focus on financing options that fit your business goals and repayment capacity, whether through an SBA microloan, a CDFI, or a trusted online lender.

Maintain a strong business plan, manage credit responsibly, and build consistent cash flow. These steps can gradually enhance your creditworthiness and expand your access to better loan programs, from the easiest business loan to get today to the best working capital loans for small business in the future.

FAQs About the Best Small Business Funding for Startups

1. What is the easiest business loan to get with bad credit?

The easiest business loan to get with bad credit is usually one that considers more than just your credit score. Lenders offering smaller loans or flexible underwriting often focus on factors such as your cash flow, business plan, and overall potential for success. These programs are designed to give startups and small business owners with limited credit history a fair opportunity to access funding and build stronger credit over time.

2. Can I qualify for the best small business funding without collateral?

Some online lenders and SBA microloans allow for unsecured loans up to a certain amount, if your monthly cash flow, business bank account activity, or business model is strong. But having collateral (equipment, real estate, vehicle) can widen your options and reduce interest rates.

3. What are the best working capital loans for small business startups?

The best working capital loans for startups are those that offer flexibility and quick access to funds. Options such as small short-term loans, business lines of credit, or invoice financing can help manage cash flow, cover expenses, and support growth, even with limited credit history.

4. How can I build credit after getting the best small business funding?

After you find the best small business funding, use the funds responsibly, make all payments on time, and keep business finances separate from personal ones. If possible, choose lenders that report to business credit bureaus and consider using a business credit card or credit line to demonstrate consistent repayment behavior.

5. What's the minimum credit score for SBA microloans or CDFI funding?

There is no fixed minimum credit score universally required for SBA microloans or CDFI funding. The SBA microloan program doesn't publish a fixed FICO score, as reported by Investopedia. CDFIs evaluate many factors beyond credit score, including business plan, cash flow, and community impact. So, while a low credit score makes things harder, it does not automatically disqualify you.

Frequent searches leading to this page