Starting a small business isn’t easy, and with bad credit history or little money, it can seem even harder to get the wheels rolling.

That’s because a lot goes into starting a small business, and the journey comes with several up-front questions, like: How much does it cost? How do I get a business loan? How do I start a business with bad credit?

While there’s no doubt it takes money to get a business up and running, a strong credit score may not be as important as you think.

To shed some light on this topic, we reached out to a few financial pros to break down some creative ways to start your own business with bad credit and limited money. Plus, we’ll also take a look at how you can find your credit score and what it means. 

How Does Credit Work?

No matter your credit score or financial situation, you can still start a small business. But before we talk about the “how to” behind that, it’s important to understand how credit works, what a good credit score is, and where you can turn for education.

Sophia Jones is a financial analyst for PiggyBank — a website built to help support informed financial decisions — and she knows exactly where to start if you’re considering starting your own business with bad or nonexistent credit.

“Before you start a business,” she says, “it’s important that you already know how credit works.” In her words, “a credit score is a number that indicates if you are someone who diligently pays back debts or loans.” 

What’s a Good Credit Score?

Jeanne Kelly, founder of The Kelly Group Credit Consulting, Inc., broke down the different credit score ranges for us. She also noted that “90% of lenders use the FICO scores during a lending process” — which is something to keep in mind as you seek out a loan.

Jeanne let us know that credit scores range from 300–850, breaking those numbers down into categories:

  • Good: 670–739 
  • Very Good: 740–799 
  • Excellent: 800–850 

“Having a good credit score will be very beneficial when you start a business,” Sophia said, “since you are more likely to get approved for loans. However, if you have a bad credit score, which usually ranges from 300 to 500, then it may be more challenging to secure funding from banks for your business.”

Where Can I Find My Score and How Can I Educate Myself?

If you’re unsure what your credit score is, there are several sources out there to find it. Plus, there are a ton of websites designed for financial education, too!. Here’s a quick list of handy links:

How to Start a Business With No Money or Bad Credit

While bad credit can make starting a business challenging, there are still options to explore. Let’s take a look at what our pros suggest!

Build Credit with Store Credit Cards

If you do have bad credit, it’s never too late to start building it back up. Sophia Jones mentioned that folks can always improve their credit score in order to secure a small business loan.

If you are just starting to build credit, Sophia said, “one of the easiest ways would be to purchase your startup equipment using store credits.” But before you sign up for a store credit card, she noted that “you should also make sure that the store you’re buying from actually reports your activity to the credit bureaus.”

Keep in mind: If you already have a business credit card, the best way you can build and improve your credit is to always pay your balance in full and on time. 

By building up your credit slowly with store credit cards, you may be in a better position down the road to receive a small business loan. 

Eliminate Startup Costs Where You Can

Jake Irving of ClueRX started his own small business from the ground floor with “no credit, zero financing, and $1,000.” His big advice for entrepreneurs with bad credit? Eliminate startup costs where you can and keep your marketing efforts free. 

“Eliminating initial overhead can be the difference between building a successful business and the company failing,” Jake said. If you’re able to swing it, “Working from home and avoiding an industry or business model that requires you to purchase lots of inventory upfront can lower your starting costs.”

In addition to reducing your startup costs where you can, Jake suggested that new business owners “build a marketing strategy that costs virtually nothing.” 

While you can easily promote your business on social media platforms or ramp up your email marketing, Jake told us that the best thing to do is “educate yourself on Search Engine Optimization (SEO) for your company website and set up your Google Business Profile. Both of these cost no money, and the payoff can be unlimited.”

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Look Into Small Business Grants

David Scott is the CEO of Neutypechic, and he had a great idea for new entrepreneurs: Apply for small business grants.

“Many organizations and government agencies offer grants to small businesses,” David said. “This is an excellent option if you do not have the collateral for a loan or if you have bad credit.”

If you’d like to try for a small business grant, here’s a short list of options to explore:

  • Grants.gov: Here you’ll find a comprehensive database of government small-business grants administered by various federal agencies.
  • Small Business Development Centers: Your local SBDC provides support for small businesses and aspiring entrepreneurs. They’re often associated with local universities or a state’s economic development agency, and many can help connect you with small-business grants, as well as other business financing opportunities.
  • Hello Alice Grant Platform: Hello Alice partners with a variety of companies, such as Progressive and DoorDash, to offer different grants for small businesses, including startups. 

Use Social Lending Sites (or Peer-to-Peer Lending)

Tiffany Payne is Head of Marketing at Replace Your Docs, and she came up with two routes for someone with bad credit to take: social lending sites and microcredit organizations. 

Tiffany suggested that entrepreneurs “use the many online social lending sites for unsecured working cash.” With social lending sites, “Members borrow money from each other in social lending.” She also pointed out that “Accessing funding for these sources is easy because you may pitch funders directly.”

If social lending sounds like something you’d like to try, here’s a short list of social lending sites to explore:

Explore Microcredit Organizations

Tiffany’s other route points to microcredit organizations, which is a great option because they “help new and developing enterprises acquire funding after banks reject them.”

“These organizations,” Tiffany noted, “are usually nonprofits funded by the SBA and understand the challenges business owners confront. Plus, they offer a plethora of guidance to help you with your long-term success.”

Try Collateral Loans

Robin Suh is the CEO for The Net Lender. Her advice? Explore a collateral loan instead of the traditional small business loan. 

“Collateral loans are protected loans,” Robin said, andt they have a “higher possibility to be effective. Even if you have bad credit, you may still have a chance to please a creditor by letting them be secured through an asset you offer as collateral.”


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