Bad credit working capital loans

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Page written by Ashlyn Brooks. Last reviewed on February 4, 2025. Next review due October 1, 2026.

It’s hard enough securing funding when you have amazing credit. Having a low credit score can make financing a challenge, especially for small businesses. However, it doesn’t have to stop you from getting the working capital you need to keep your business running smoothly. Whether you’re looking to cover day-to-day expenses or fund growth opportunities, there are financing options available, even if your credit isn’t perfect.

Let’s break down what bad credit means, your options for getting a working capital loan, and how Swoop can help.

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What is considered ‘bad credit’?

Anything below 600 could use some attention. But this depends on your financial history as a whole. Bad credit is generally comprised of both a low credit score or a history of missed payments, defaults, or other financial issues that signal risk to lenders. Here are a few financial issues that can contribute:

Late payments
High debt utilization
Lack of credit history
Bankruptcy

Keep in mind that for small to mid-sized businesses, credit scores are often a reflection of both the owner’s personal credit and the company’s financial performance. While these issues can make borrowing more difficult, many lenders offer specialized products for businesses in this situation.

Can I get a working capital loan with bad credit?

Yes, it’s still possible to get a working capital loan with bad credit, but you may have to put in more effort and be flexible on the terms. Many lenders focus on other factors, including your business’s revenue, cash flow, or collateral, rather than solely relying on your credit score.

3 business loan options for bad credit

Let’s discuss some of your options if you do have less than prime credit. Bear in mind that while these options are accessible to businesses with bad credit, they often come with higher interest rates or fees. It’s essential to compare terms and understand the total cost before committing.

Revenue-based loans are based on your monthly revenue, with repayment tied to a percentage of sales.
Invoice financing can be used as collateral to secure funding if you have outstanding invoices.
Merchant cash advances allow you to borrow against future credit card sales, though costs can be high.

How to apply for a bad credit working capital loan

You can apply for these loans in the same way you would for a traditional loan. The main goal is to demonstrate your business’s ability to repay despite past financial challenges. Here’s what you’ll need:

Revenue proof to show consistent cash flow or monthly sales assuring lenders of repayment capacity.
Business age of at least six months. Many lenders require businesses to have been operational for at least six months to one year.
Collateral such as assets (e.g., equipment, inventory) as security for secured loans if required.
Bank statements to show financial activity and stability.

Are secured working capital loans my only option?

No, secured loans aren’t your only option, but they often hold a lower barrier to entry for businesses with bad credit. A secured loan requires collateral, which reduces the lender’s risk and increases your chances of approval.

3 Benefits of secured working capital loans

Lower interest rates: Secured loans typically have lower rates because they’re backed by collateral.
Larger loan amounts: With collateral, you may qualify for higher funding limits.
Flexible repayment terms: Secured loans can come with longer repayment periods, easing cash flow pressures.

3 Alternatives to secured business loans

Let’s look at some common options for you to consider if secured loans aren’t your top choice.

Unsecured loans: These are working capital loans without requiring collateral, though these usually come with higher interest rates.
Invoice factoring: Where you can sell your outstanding invoices at a discount to access cash quickly.
Equipment financing: For example, you could put up newly purchased equipment as collateral to secure funding.

How changes in working capital can affect your business

Changes in working capital can directly impact your cash flow and operations. A negative shift( such as an increase in accounts receivable or inventory) can reduce liquidity. But a positive shift can provide the cash needed for day-to-day expenses. Monitoring and managing these changes ensures your business remains stable, even during periods of financial strain.

Let’s look at an example. Take Company A, a small retail business preparing for the holiday season. To meet expected demand, the company significantly increases its inventory, tying up a large portion of its cash in unsold goods. This negative shift in working capital reduces liquidity, making it harder for Company A to pay its suppliers or cover operational expenses.

Now, consider the opposite scenario. After the holiday season, Company A quickly sells through its inventory and collects payments from customers, leading to an increase in cash on hand and a positive shift in working capital. This improved liquidity allows the business to meet its short-term obligations more easily and even consider reinvesting in growth opportunities.

How Swoop can help

At Swoop we specialize in helping small to medium-sized business owners secure the funding they need to establish or grow their business. Our lenders specialize in looking at applicants holistically, including considering credit scores and past credit usage.

That being said, we’re experienced in helping businesses from all walks of the credit track and are here to present all of the funding options available to you, including business loans, business grants, and more.

Written by

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.

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