How to Get a Business Loan From a Big Bank With Bad Credit

(April 2024)

How to Get a Business Loan From a Big Bank With Bad Credit

In This Article

Adequate funding is the lifeblood of every business, irrespective of the growth stage. However, bad credit is a major obstacle when it comes to business loans. As a bad-credit applicant, you may sometimes feel like wasting your time when applying for a business loan.

Frankly, getting a business loan from a big bank with bad credit is not as difficult as you probably think as long as you know the right steps.

To get a massive business loan with bad credit from a big bank:

  • Have a Legit Business
  • Work on Your Personal Credit Score
  • Prepare Your Business for Due Diligence
  • Get a Co-signer (if Possible)
  • Carefully Choose a Lender
  • Apply for the Proper Business Loan

Ready? Let’s go!

1. Have a Legit Business

To get a business loan from a big bank with patchy credit, have a legit business.

What does that mean?

Have an established business with a business registration, license and business name filing with the state. Also, have a business checking account ensure your business is compliant with tax and labor laws.

The bank will request specific business documents to be confident that you have an established business that’s capable of repaying the loan. These documents include:

  • Business income tax returns
  • Balance sheet and income statement
  • Business bank statements
  • Business licenses
  • Articles of incorporation (or organization)
  • Commercial leases

2. Work on Your Personal Credit Score

Before applying for a bank business loan with bad credit, improve your credit score and bring it to reasonable levels.

Which band are you currently at on the FICO score spectrum? 300, 400, 500 or 600?

Have a clear idea of your starting point so you can take the necessary actions to boost your credit score—for real.

Review your credit reports to identify the items that are keeping your credit score in the FICO basement. Get a copy of your credit report from each of the three major national credit bureaus: Equifax, Experian and TransUnion.

Once a year, order a copy of your credit report from these credit bureaus for free on AnnualCreditReport.com.

Review your credit report to identify the derogatory marks that are negatively impacting your score—and start working on them.

To boost your FICO score, also try to:

  • Make timely payments on your loans and credit card balances.
  • Keep low balances on your credit cards.
  • Apply sparsely for credit so inquiries don’t flood your FICO report.
  • Have a good mix of credit products—credit cards, loans and lines of credit.

3. Prepare Your Business for Due Diligence

To get a business loan from a big national bank with bad credit, brace yourself for an in-depth review of your business’s operations. Lenders conduct extensive due diligence to assess borrowers’ financial and economic position before extending business loans. No doubt about it.

The bank will conduct extensive due diligence to assess your company’s financial and economic position before extending the business loan. You know what? That level of investigation does definitely make sense—if you were to think about it.

You have bad personal credit, so the bank assumes (rightfully) that you were not able to properly manage your finances in the past. So the lender just wants to make sure the business you’re now running has the financial heft needed to repay whatever loan the bank extends to the business.

That’s called credit risk management. If your business passes muster at the end of the due diligence process, the bank then decides the loan amount the business qualifies for—and on what terms.

The bank reviews essential documents representing your business’s current financial health and future. These documents include your business plan, bank statements (both personal and business), and other financial documents.

Some lenders may ask for copies of your business licenses and other legal documents. The lender also needs to know how you intend to use the money and the collateral details.

To get a business loan from a big bank with bad credit, ensure you have a solid business plan to convince the bank that your business’s credit risk profile is worth it. Also, ensure that all your financial documents are in order—and reconcile differences in your financial records, if any.

The trick here is to thoroughly prepare for due diligence and review your business operations in advance so you can identify—and remedy—potential issues and thus increase your business loan approval odds.

Among other things, make sure your accounting processes are sound, that you are up to date in terms of business licenses and permits, that you have a recent certificate of good standing from state authorities, and that your business is compliant with state and federal tax and labor laws.

4. Get a Co-signer

To get a business loan from a big bank with bad credit, enlist the help of a co-signer. Union makes strength, right? A co-signer takes responsibility for the business loan repayment if you fail to pay.

As a bad-credit borrower, applying for a business loan with a co-signer reduces the risk on the lender’s part and can improve your approval odds. Make sure the co-signer has stellar credit, though.

Talk to anyone with a high credit score who is willing to co-sign a business loan with you. The co-signer could be a family member, friends, or even business partner. Make him or her understand the risks of co-signing the loan. Let the co-signer know that by co-signing the loan, he or she is responsible for the entire loan amount, and that his or her credit is also on the line.

5. Carefully Choose a Lender

To get a business loan from a big bank, you must carefully choose a lender to find the best deal. Use the following criteria to compare bank lenders so you can get the best rate and repayment term for your business loan:

Eligibility Requirements

Familiarize yourself with the minimum eligibility requirements the bank has set for its business loans—and see whether your bad credit score is a big no-no…or something you could work around to get the business loan.

Loan Offerings

Check loan amounts and repayment terms of the bank and see whether they suit your funding needs and budget. If you feel it will be difficult to afford the monthly payments, check other big banks for a business loan product.

Annual Percentage Rates

See the APR range the bank charges for its loans, and determine if you can afford to make payments on a business loan with a high APR—because, unfortunately, that’s the kind of APR your bad personal credit score will invite…assuming you ultimately get the loan, of course. Loans with U.S. Small Business Administration (SBA) backing offer low rates, ranging from 7% to 9.50%.

Additional Costs

Additional costs in business loans include origination, late payment, administrative and maintenance fees. Inquire about these loan costs and ensure they are within what you can afford.

Turnaround Time

The turnaround time for loans for bad credit borrowers is usually slow. Check to see which big, national bank has a faster underwriting and funding process.

6. Apply For the Proper Business Loan

To successfully get a business from a big bank with bad credit, be as thorough when filling out the loan application form as you were during the due diligence process. Apply preferably at a branch so you can receive appropriate guidance from a rep in case you have questions.

Alternatively, apply online or over the phone. Answer all important questions such as business name, EIN, address and email—and provide complete financial statements and ancillary documents and the regulatory paperwork the bank asks you. The goal here is to be as complete and detailed as possible.

Final Word

To get a business loan from a big bank with bad credit, work on your personal credit score and prepare your business for due diligence. To improve your approval odds, get a co-signer, then carefully choose a lender and apply.

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