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Building a business often requires financing, but it can be hard to get approved with a credit score that’s low or that hasn’t been established yet.
Some lenders offer business loans with no credit check. Each lender has its own requirements, which may include things like minimum annual revenue amount, time in business, and appropriate collateral.
Keep reading to learn more on no–credit check business loans, how to get one, and alternative sources of funding.
Key Points
• With a no–credit check business loan, the lender does not conduct a hard credit check or review your credit history.
• Some lenders may offer business loans with no credit check, but these loans will come with higher interest rates because they present greater risks for the lender.
• Alternatives to no–credit check business loans include traditional small business loans, equipment financing, and merchant cash advances.
• Small business grants are another option for no–credit check funding; repayment’s not expected, so credit scores need not be considered.
Can You Get a Business Loan With No Credit Check?
Banks and other traditional lenders that are willing to give loans to business owners want to be sure that the loans have a decent chance of being paid back. That means assessing a loan applicant’s ability to make those payments. How could a bank or other type of lending organization make such an assessment without even being able to look at the credit history of the business? The challenge is clear.
That said, there are financing opportunities for small business owners that involve no credit check. Some lenders do offer such loans, but they are considered risky and often have high interest rates and origination fees.
Recommended: Can You Get a Small Business Loan With Just EIN?
What Are the Challenges of No–Credit Check Loans?
A loan that doesn’t require a credit check can leave you carrying extra financial burdens.
No–credit check loans are likely to have less favorable conditions than traditional small business loans. For example, repayment terms are often significantly shorter (as in, months rather than years). Payments may be due more frequently, extra fees may apply, and interest rates will be higher.
Steep interest rates often cause large monthly payments, which can be hard to sustain, especially if your business is seasonal. And unsustainable payments increase the risk of defaulting on the loan.
Important Considerations
As noted above, no–credit check loans often have high interest rates and fees. Here are some angles to consider.
• How much of your business’s monthly revenue will be consumed by loan payments? Exorbitant interest rates call for large and/or frequent payments, which can crush your cash flow and steer you into a relentless cycle of debt. An inability to get out of debt could leave you vulnerable to predatory lenders down the road.
• What are the additional fees being charged? Some lenders may tack on extra charges (including high origination fees) that add to your overall debt.
• Will payments be reported to the three major credit bureaus? If not, your responsible repayment of a no–credit check loan might have no effect on your credit history. You could lose the opportunity to strengthen your business credit score and lower the price of future loans. For that matter, a delinquency or default in payments that is reported to credit bureaus will probably harm your credit score.
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Alternative Sources of Funding for Small Businesses
There are small business loan alternatives that may work in place of a no–credit check business loan. Consider the alternatives below.
No–Credit Check Personal Loans
No–credit check personal loans may be an option worth exploring. However, it’s important to note that personal loans generally cannot be used for business purposes. Make sure you check for any restrictions against using a personal loan for business purposes before applying for one.
Recommended: What Is the Minimum Credit Score for a Business Loan?
Payroll Loans
Payroll loans are designed to specifically fund employee paychecks in the event of a short-term cash flow issue. Approval and funding times are usually fast to cover last-minute gaps in capital. These loans are seen as a last resort by many because they come with very high interest rates.
Equipment Financing
Equipment financing can help you get funding in place for machinery or office equipment. The actual assets are used as collateral, although you may also need to offer a personal guarantee.
Merchant Cash Advances
A merchant cash advance is based on future sales through your point-of-sale system, also known as your POS system. You can borrow a lump sum, then pay back the loan using a percentage of your daily sales.
Business Grants
Small business grants are available from various national, state, and local agencies, as well as private-sector organizations. Because you don’t have to pay back grant money, donors generally pay less attention to your credit history. Instead, grant applications usually center on business plans, financial documents, and details about how the funds will be used. A good place to start looking for grants that might suit your business is the database grants.gov.
Pros and Cons of No–Credit Check Business Loans
No–credit check loans offer significant advantages and disadvantages. Pros of no–credit check business loans include:
• They provide quick and accessible funding for individuals with poor or no credit history, bypassing the lengthy approval processes associated with traditional loans.
• They can offer a pathway to rebuilding credit if timely payments are reported to credit bureaus.
However, the downsides are substantial. Cons of no–credit check loans include:
• Very high interest rates and fees make these loans more expensive in the long run.
• Risk of predatory lending practices is higher, potentially trapping borrowers in a cycle of debt.
• The lack of credit checks means lenders are not assessing the borrower’s ability to repay, which can lead to financial strain and default.
While no–credit check loans can be a lifeline for those with limited options, they should be approached with caution and as a last resort.
When These Loans Might Make Sense
Some business owners may struggle to meet the credit requirements for traditional loans from banks or credit unions. But for businesses that can showcase consistent and stable monthly revenue, proving it generates enough income to cover loan payments, no–credit business loans may be a workable funding option.
If even bad credit business loans are hard to get, but you have assets like equipment or real estate, you could use them as collateral for a no–credit check loan. Or, if the business needs cash right away, these loans may be workable, as they tend to be processed quickly.
As always, it’s wise to read the fine print carefully.
How to Strengthen Your Application Without a Credit Check
There are ways to beef up your loan application that have nothing to do with your credit score. For example, you may be able to boost lender confidence by presenting a well-organized file of financial records, including bank statements from the past year, profit and loss statements, balance sheets, tax returns, and any outstanding invoices or accounts receivable. This demonstrates your business’s transparency and financial discipline.
Focus on Revenue and Cash Flow
Evidence that the company has steady recurrent revenues, plentiful cash flow, and increasing annual revenue should help persuade a lender to approve a loan without a credit check. You could use documentation such as cash flow statements and bank records to show proof of deposits and stable account activity.
Offer Collateral or Guarantees
Lenders who offer business loans with no credit check often compensate for the increased risk by requiring collateral or a personal guarantee. Valuable assets that could serve as collateral for a no–credit check loan include heavy equipment, inventory, real estate, or accounts receivable.
Many business loans — especially for startups or businesses with limited history — require personal guarantees. A personal guarantee makes an individual responsible for the business loan if the company can’t repay it. This gives the lender some recourse in case of default. This word doesn’t signify guaranteed approval, especially for loans with no credit check.
Explore Small Business Loans
Not having a good credit score will make it challenging to get a small business loan, but it won’t be impossible. No–credit check loans may be a viable way for you to get the funds you need, though they typically come with higher interest rates and fees than loans that require good credit.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Can you get a business loan if you have no credit?
Yes, there are no-credit business loans available. In order to qualify, your business usually needs to meet other requirements, such as certain revenue numbers, and you should be prepared to pay high interest.
Do small business loans require a credit check?
Not all small business loans include a credit check, but you may see higher rates and fees with loans that don’t rely as heavily on the applicant’s credit score.
Can you get a business loan with bad credit?
It is possible to get a business loan with a credit score of 500, which is classified as either “fair” or “poor.” The lender may demand collateral or impose high interest rates. If your credit score is below 500, it’s prudent to consider other funding options, such as crowdsourcing or invoice factoring.
Can you get a business loan with your EIN number?
It is unlikely you will get a traditional business loan with only an EIN number, but some less traditional lenders may offer financing. Lenders may also consider your personal credit score, business credit history, revenue, and overall financial health.
What are the risks of taking out a no–credit check business loan?
For a no–credit business loan, lenders generally charge high interest rates and may demand collateral as well. A loan with a high interest rate may be more difficult for a borrower to repay on time, possibly leading to delinquency or default. Inability to pay could lead to the debt being sent to collections, a drop in the borrower’s credit score, or even bankruptcy.
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