How to Get a Startup Business Line of Credit With Bad Credit

(April 2024)

How to Get a Startup Business Line of Credit With Bad Credit

In This Article

As a startup founder, you’ll find that a business line of credit is one of the best financing options for your fledgling business. A business line of credit helps you cover unplanned business costs and other short-term expenses.

Getting a startup line of credit with bad credit is a tall order, but your business can qualify if you follow the steps mentioned in this article.

Follow this guide to get a startup business line of credit:

  • Understand What a Business Line of Credit is.
  • Have a Legit Business.
  • Build Your Business Credit.
  • Improve Your Personal Credit.
  • Raise Your Personal Net Worth.
  • Establish the Proper Banking Relationship.
  • Get Your Business Documents Up to Date.
  • Have Your Collateral Ready.
  • Explore Multiple Options.

Now, let’s dive right into it.

1. Understand What a Business Line of Credit Is

To get a startup business line of credit, understand what a business line of credit is. It is a flexible financing solution that allows business owners to meet short-term business expenditures. It works like a credit card, letting you borrow money when needed—up to a certain limit—with a promise to pay it back later.

Unlike a traditional startup business loan, you pay interest only on the credit line portion you tap into. In addition, lines of credit are revolving, meaning that once you pay back the amount you borrowed, you can access funds again.

There are two types of business lines of credit: secured and unsecured—and the two have different requirements, interest rates and fees.

A secured business line of credit requires collateral to protect the lender’s interest. On the flip side, you do not need collateral for an unsecured business line of credit, which explains why it’s harder to obtain and why it attracts higher interest rates.

2. Have a Legit Business

To get a startup business line of credit with a poor personal FICO score, establish a legit business by following these steps:

  • Choose a business structure: sole proprietorship, partnership, corporation or limited liability company(LLC).
  • Set your business address.
  • Choose a business name.
  • Incorporate your company with local and state authorities.
  • Get a federal employer identification number (EIN) from the IRS.
  • Open a business bank account.

3. Build Your Business Credit

To get a startup business line of credit with bad credit, build your business credit as it is a major consideration for lenders when it comes to approving your application.

Follow these steps to build your credit:

  • Have an established business with a name, structure, address, EIN, and bank account.
  • Build a Relationship With Your Vendors and Suppliers: Establish credit relationships with vendors and suppliers, and make sure they report your purchases, credit limits and payments to business credit bureaus.

As your startup buys supplies, inventory or other materials on credit, vendors report your purchases and payments to business credit reporting agencies. When your startup features several trade lines reporting, credit bureaus can generate a business credit score for your business.

Make sure you pay your bills on time—all the time—so you can gradually build a stellar relationship with your vendors and suppliers.

  • Monitor Your Business Credit Report: Track your business’s information with business credit reporting agencies such as Dun & Bradstreet, Experian and Equifax, which help you manage your business credit for a fee.

Keep in mind you can access your Dun & Bradstreet, Experian and Equifax business credit reports and scores on free tools like Tillful and Nav. If you discover any incorrect or outdated information, contact the reporting agency promptly so it can make the appropriate changes.

4. Improve Your Personal Credit

To get a startup business line of credit with a less-than-stellar credit score, improve your personal credit. Now you might be wondering what your personal credit score has to do with your startup business line of credit. You must tidy up your personal credit, as strong personal credit helps boost your chances of getting funding for your business.

To build your personal credit and increase your odds of getting a startup business line of credit:

  • Pay your bills on time—all the time
  • Clear all your existing debt: If you have any revolving lines of credit, pay them down as low as you can.
  • Reduce your hard inquiries; don’t apply for too much credit within a short time.

5. Raise Your Personal Net Worth

If you don’t have good credit but need a startup line of credit, have cash on the personal side. Raising your personal net worth increases your approval odds when it comes to business lines of credit.

To increase your net worth:

  • Increase retirement contributions.
  • Cut down on your expenses.
  • Find additional income sources.
  • Avoid debts, especially those with screaming interest rates.
  • Save for emergencies.

6. Establish the Proper Banking Relationship

To get a startup business line of credit with bad credit, establish proper banking relationships. The right rapport with banks or credit unions can grow into a constructive business relationship that you can parlay into a successful business credit line application.

Build a relationship with your local bank. Get to know as many people as you can, tellers, managers, and top executives in the bank. Take out a loan or personal line of credit and use other banking products. These relationships may impact your application’s approval odds even when you have less-than-stellar credit.

7. Get Your Business Documents Up to Date

Before applying for a startup business line of credit with bad credit, get your business documents up to date, as they are necessary when applying for business credit. A lender may ask for some or all of these documents:

  • Personal and business tax returns
  • Employee Identification Number (EIN)
  • Business licenses and permits
  • Bank statements
  • Balance sheet
  • Accounts payable and accounts receivables
  • Payroll records
  • Copy of your commercial lease
  • Disclosure of other debt
  • Legal contracts and agreements
  • Ownership and affiliations
  • Proof of collateral
  • Business insurance plans
  • Incorporation documents
  • Business plan
  • Your driver’s license

To get a list of the documents your lender requires, check your lender’s website or contact the customer representative before applying.

8. Have Your Collateral or Other Security Means Ready

To boost your approval odds for a startup business line of credit—especially if you have a poor FICO score—pledge business or personal collateral. Keep in mind that collateral is anything of value—cash, personal asset, business asset, equipment, etc.—you can pledge to guarantee repayment on a business loan or line of credit.

Business lenders have a minimum operational history requirement of six months to two years—a criterion that your business, as a startup, certainly does not have. But check with the lender. You never know!

In some cases, no matter your length of business history, the right lender can approve your startup business line of credit, with or without collateral. If the lender asks for collateral, be ready to pledge assets such as real property, automobiles, machinery or a brokerage investment account.

Maintain reasonable expectations, though. Collateral alone doesn’t guarantee approval, as the lender reviews a constellation of factors before approval.

9. Explore Multiple Options

To get a startup business line of credit with bad credit, weigh the pros and cons. Explore multiple financing options to make an informed choice for your startup.

Carefully review each loan offer to ensure you are comfortable with the costs and repayment terms. Here’s a tip to help your search: focus more on online lenders. Some online lenders allow a personal credit score that is below 600. However, keep in mind that their interest rate is usually higher than a bank’s. Also, you may get a lower amount than you originally applied for.


Whether you need cash to finance day-to-day business expenses or to ramp up new projects, applying for a business line of credit with bad credit can be a smart financing approach. To get a startup business line of credit with bad credit, understand what a business line of credit is, have a legit business, and build your business credit.

Also, improve your personal credit and raise your personal net worth, establish the proper banking relationship, get your business documents up-to-date, and have your collateral ready. When you have all these in place, then, explore multiple options.

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