Can You Get an SBA Loan With Bad Credit?
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Getting an SBA loan with bad credit will likely be very challenging, but it may not be impossible. Ultimately, your ability to qualify depends on your credit score, the lender, the type of SBA loan you’re trying to get and a host of other factors.
The only SBA loan you’ll likely be able to get with bad credit is an SBA microloan. You can increase your chances of qualifying for other SBA loans in the future by improving your credit score, having good collateral on-hand and writing a strong business plan.
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Minimum credit score requirements for SBA loans
For SBA loans, you’ll typically need a minimum credit score of around 620 to 650 to qualify. NerdWallet defines bad credit as a personal credit score of 629 or below.
The SBA doesn’t set minimum credit score requirements for its small-business loans. Instead, it’s up to individual lenders to come up with their own credit requirements. That said, here are the typical minimum credit scores you’ll likely need across various SBA loans:
SBA loan program | Minimum credit score | Max loan amount |
|---|---|---|
620 | $50,000 | |
650 | $5 million | |
650 | $500,000 | |
650 | $5 million | |
680 | $5 million | |
N/A | $2 million |
SBA microloans are a bad-credit option
Due to its low minimum credit score requirement, a microloan will likely be your only option for qualifying for an SBA loan with bad credit.
SBA microloans help small-business owners pay for various business expenses, such as inventory, equipment, furniture and more. While the maximum loan amount for microloans is capped at $50,000, the average SBA microloan amount in fiscal year 2024 was only $16,121.
If $50,000 isn’t enough for you, check out NerdWallet’s list of best business loans for bad credit for more options. Otherwise, find a list of authorized lenders issuing SBA microloans in your state by visiting SBA’s list of microlenders.
How bad credit impacts SBA loan eligibility
A personal credit score is a reflection of your past behavior with debt. Lenders use it to gauge how likely you are to repay a small-business loan on time.
Generally, the higher your credit score, the more willing lenders will be to let you borrow money. You’ll also typically have access to better interest rates and terms, such as longer payment periods.
On the flip side, the lower your credit score, the fewer loan options you’ll have available. That’s because lenders will view you as more of a risk.
Ways to strengthen your SBA loan application
A lender or certified development company (CDC) may consider a potential borrower’s credit score, business earnings and cash flow, and equity or collateral when determining their creditworthiness for an SBA loan, according to the U.S. Code of Federal Regulations.
This is good news. Because this means there are other ways you can demonstrate creditworthiness to potential lenders, even if your credit score isn’t as high as you’d like it to be.
Here are some ways to increase your chances of qualifying for an SBA loan:
Have good collateral on-hand
Collateral is any asset you own, such as stocks, real estate or accounts receivable, that a lender can legally take to cover its losses in case you fail to repay your debt. Most SBA lenders require some form of collateral to back up, or secure, the loan. Lenders consider high-value items that can be sold quickly and easily as good options for collateral.
» Learn more about providing collateral for an SBA loan.
Build a compelling business plan
For SBA loans, you’ll probably be asked to submit a business plan as part of the loan application process. Use this as an opportunity to demonstrate your industry expertise, business savviness and outline how you’ll use the borrowed funds to enhance your business’s bottom line.
Find a cosigner with good credit
A cosigner is someone who agrees to step in and make payments on a loan if the borrower cannot. If your cosigner has excellent credit, that can help to strengthen your SBA loan application.
Improve your personal credit score
The best way to improve your odds of getting an SBA loan with bad credit is to boost your credit score. Of course, this isn’t always easy, especially when you’re looking for quick financing.
If you don’t need an SBA loan right away, you may be able to take the following steps to improve your credit score fast:
Pay down existing debt. Reducing existing debts and your current credit utilization can quickly boost a bad credit score. Credit utilization is the amount of available credit you’re currently borrowing on open lines of credit, such as a personal credit card.
Ask for higher credit limits. You may also instantly reduce your credit utilization by asking credit card issuers to increase your credit limit. Just be careful not to increase your spending unnecessarily as a result.
Become an authorized user on someone else’s account. If someone you trust has better credit than you, you can ask to become an authorized user on their credit card account. Doing so can have a positive impact on your credit score, even if you never use or get issued a credit card on their account.
Carefully review your credit report. Reporting errors on your credit report, such as false missed payments, can quickly improve your credit score. You can request a free credit report from each of the three credit reporting agencies on AnnualCreditReport.com.
To be eligible for an SBA loan, you’ll need to be a for-profit, U.S.-based business that falls within the SBA size requirements for small businesses. You also may be restricted by what you can spend borrowed funds on and you’ll likely have to exhaust all other financing options before applying for an SBA loan.
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