Can I get a small business loan with bad credit?

If you are searching for a small business loan with bad credit, start with how lenders read credit. The Financial Consumer Agency of Canada says lenders use your credit report and score to decide whether they will lend you money and at what interest rate. For a small business loan, the file that gets read may be yours as well as the company’s: BDC’s criteria name the owner’s personal credit score, so a weak personal record is worth understanding before you apply.

What the published programs say

BDC says you are more likely to qualify for its Small Business Loan if your business meets listed criteria. Those criteria include a personal credit score, a minimum annual revenue and a minimum time in business. BDC adds that meeting them does not guarantee approval. Under the Canada Small Business Financing Program (CSBFP), the government’s guidelines call for the lender to do a credit check or obtain credit references on the borrower, on anyone legally or financially responsible for it (such as shareholders or guarantors), or on both. The same guidelines expect the lender to apply the due diligence it would apply to a conventional term loan or line of credit for the same amount.

What else a lender weighs

A score is not the whole file. BDC says that when a working capital loan has no security, bankers look at the company’s cash flow and also at company management, the industry, whether the project makes sense, and the owner’s personal credit score and net worth. BDC also says that without tangible collateral you will generally be required to sign a personal guarantee to obtain a working capital loan. If your credit is weak, ask what security the lender wants instead and what each option would put at risk.

Before you apply

The Financial Consumer Agency notes that credit bureaus and lenders use different formulas, so the score a lender sees may not match the one you saw. It also says that when a lender checks your credit, an inquiry is added to your report. Ask a lender whether it will pull your report at the first conversation or only on a formal application. Our answer on how credit history affects an acquisition loan covers the buying side.