What to know about no-credit-check business loans (2024)

Getting a business loan can be rigorous, even if you have a strong credit profile. But what about prospective borrowers who are new to credit or have low credit scores?

There are no-credit-check options out there, but they’re often more expensive and have shorter repayment terms. A few reputable lenders offer no-credit-check business loans, but you can also consider options like invoice factoring, invoice financing and merchant cash advances. Many lenders automatically collect repayment as a percentage of your sales, and some help you build your business credit by reporting payments to the credit bureaus.

We’ll explore your options and tell you what to watch out for.

5 options for business loans without a credit check

1. PayPal Working Capital Loan

Best use: Businesses that use PayPal for payment processing

Instead of relying on your credit history to assess your eligibility, PayPal reviews your account history when making lending decisions. Approval and funding can happen in minutes, with no credit check required. Your business can borrow between $1,000 and $150,000 for the first loan and up to $250,000 for subsequent loans.

To qualify, you must meet the following requirements:

• Have a Business or Premier PayPal account that’s been active for at least 90 days
• $20,000 in annual PayPal sales as a Premier account holder or $15,000 as a Business account holder

Repayment is automatically deducted as a percentage of each PayPal sale, and no payments are due on days without sales. Rather than paying a traditional interest rate, you must pay a minimum of 5% or 10% of the loan amount (depending on your loan term) every 90 days — if the automatic payments don’t cover that minimum, you’ll need to make an additional payment. Rather than facing interest charges, you’ll be charged a fixed fee.

2. Square Loans

Best use: Businesses that use Square for payment processing

Square Loans’ borrowing model is very similar to PayPal’s: Borrow between $300 and $250,000 and automatically repay the loan with a percentage of your Square sales. Minimum payments are due every 60 days, if not fully covered by the automatic payments, and the balance must be repaid in full within 18 months.

Users can request funding through their Dashboard and select from multiple loan offers. The app displays the upfront fee and the percentage of daily credit card sales collected based on how much you need to borrow. There are no interest charges, but you will be charged a fixed fee.

The Square team assesses factors like your Square processing volume, Square payment frequency, number of payment disputes and customer mix. You’re most likely to qualify if your business processes at least $10,000 or more per year with Square. If your application is approved, funds are deposited in your external bank account within one to three days, or are available instantly in your Square Checking account.

3. Invoice factoring

Best use: Business-to-business (B2B) companies with long invoicing periods

Invoice factoring involves selling unpaid invoices to a third-party factoring company. The third party pays you a percentage of the invoice amount (often up to 90%) within days. When the factoring company collects the outstanding balance, the money is paid to your business minus a percentage the factoring company keeps.

Example: Say you sell $15,000 in goods to another business. A factoring company agrees to buy the invoice for 80% of the value, or $12,000. You receive that money in a lump sum upfront, while the factoring company pursues payment on the invoice.

As a fee for their services, the factoring company charges a 4% fee for every 30 days the invoice is outstanding. Your customer pays within 30 days, so the factor fee is $600 (0.04 x $15,000). With the invoice paid, the factoring company sends you the remaining 20% of your invoice (minus the fee), so you receive an additional $2,400.

All told, you’ve received $14,400 of your $15,000 invoice.

4. Invoice financing

Best use: Businesses with long invoicing periods that want to retain control over collections

Invoice financing also allows companies to get an advance on unpaid invoices. But unlike invoice factoring, business owners keep control over the invoicing process: You use your unpaid invoices as collateral for a loan.

Lender requirements vary, but you may be eligible to obtain immediate funds worth up to 85% of your outstanding invoice balance. You will pay interest on the amount you borrow and may receive funding as quickly as the same business day you apply.

5. Merchant cash advance

Best use: Businesses with ample credit card sales

A merchant cash advance (MCA) is financing based on future credit card sales — it isn’t a traditional installment loan, so the eligibility criteria may be less stringent. You’ll borrow a lump sum and must agree to allow the merchant to collect a percentage of your daily credit card sales to repay the amount you borrowed, plus fees.

Lender requirements and loan limits vary, but you may be able to borrow a substantial sum depending on sales and receivables. However, MCAs don’t report your payment history to the credit bureaus, so you won’t build credit this way. Plus, MCAs tend to be significantly more expensive than other forms of business borrowing — fees can equate to APRs of 50% to 100% or more.

Pros and cons of business loans with no credit check

If your company doesn’t have established credit and you have poor personal credit, a no-credit-check business loan may be one of your only options if you need to borrow. Access to financing can make all the difference in continuing operations and growing your company. If the lender reports to the credit bureaus, you can build credit so future borrowing will be easier and more affordable.

Unfortunately, not all lenders report to credit bureaus, especially if you choose alternative financing options. And, you may end up paying a significant amount of money to get a business loan with no personal credit check (or a similar no-doc business loan).

“In general, if a lender is not doing work upfront, such as credit checks and reviewing financials, they’re planning to make money on the backend via hidden fees, penalty interest or other onerous terms,” said Carolyn Katz, a startup advisor and consultant who runs the funding group at nonprofit Score NYC. “I always caution business owners against any loan that’s too quick or easy.”

How to get a business loan with bad credit

Taking steps to become a well-qualified borrower can also make it easier to get a business loan — even with bad credit. Here are the steps you can take to make borrowing easier.

1. Create a budget. It helps you determine how much you need to borrow and how much you can comfortably repay.

2. Check your credit scores. Monitor your personal and business credit scores to know where you stand. You can run a business credit report online at sites like Experian.com, but you’ll often have to pay a fee. You can check your personal credit reports at no cost via AnnualCreditReport.com. Your personal credit scores can often be obtained through your banking institution or credit card company, or you can pay a third party to access your scores.

3. Strengthen your application. Improving your credit scores can help you get funding, but taking other steps like making a detailed business plan or getting a cosigner can also go a long way toward making it possible to qualify for a loan. Offering collateral or a larger down payment may also make your business loan application less risky for the lender.

4. Compare your options. Finally, compare business loans with many lenders, including SBA loans backed by the Small Business Administration. Although you’re bound to receive higher APRs if you have poor or thin credit, shopping around can help you find the best, most affordable loan for you.

Alternatives to no-credit-check business loans

No-credit-check business loans can help business owners in a pinch, but they aren’t always the best financing solution. Before making a final decision, consider the following alternatives:

Small business grants

This is a type of funding that doesn’t require repayment, so there’s no credit check required. Each grant has its own set of eligibility criteria, often focusing on a particular demographic, identity group or business type. Common requirements include a minimum time in business, number of employees and viable business plan.

Grants are available through the federal, state and local governments, as well as private institutions and nonprofits. Start your search for federal grants at Grants.gov. Remember that there is often a lot of competition for business grants, so take the time to make your application stand out.

Crowdfunding

Crowdfunding involves collecting small donations from many donors to finance your business goals. In exchange for the funds provided, you may offer equity in the business, a promise to repay the money or rewards such as a product or service to those who provide funding.

There are many crowdfunding sites online where you can pitch your company idea to potential investors and solicit funds, including Kiva, Indiegogo and StartEngine.

Nontraditional lenders

They can provide options for small business loans with no credit check. Examples include loans from Square and PayPal that are available based on credit card transactions and collect payments by taking a percentage of sales.

There may be other affordable borrowing options in your area.

“Search for the nonprofit lenders and economic development agencies in your community,” said Katie Kramer, executive director for the Ohio Statewide Development Corporation (OSDC). “Almost every city and state has dedicated agencies that offer low-cost small business financing options that will accept other types of information to secure a business loan, such as business or personal financial documents, alternative forms of collateral or personal guarantees.”

Friends and family

Friends and family may also be willing to loan money for business operations. Just be aware that this can put your relationship at risk, especially if you can’t pay them back or if there’s a conflict over loan terms. If you borrow from loved ones, create a written loan agreement that outlines what happens in the scenario that you can’t pay them back on schedule.