The Best Small Business Loans With No Credit Check
You need extra capital for your business, and a small business loan seems like the logical next step. But how do you navigate the loan process when you want to avoid a credit check? Are there lenders out there willing to loan money to small businesses without pulling credit?
Maybe your credit score is low and you don’t think you’ll qualify for a loan or other financing. On the flip side, you may have a great credit score, and you don’t want to tarnish your report with inquiries from lenders. No matter your reasoning, there are financing options available that don’t require a credit check. Read on to find out more about the best small business loans available to you.
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Can I Get A Business Loan With No Credit Check?
While it is possible to get a business loan without a credit check, it’s important to remember that your options will be limited. Traditional business lenders that offer low-interest loans will always perform a credit check before approving a loan.
However, there are alternative lenders that offer financing options regardless of credit score. These lenders may not consider credit as a factor at all, focusing more on the performance of your business and the amount of revenue coming in.
If you have a low credit score or you don’t want to add multiple inquiries to your credit report, there are also lenders that perform a soft pull to prequalify the loan. A hard pull comes later in the process. We’ll go into the differences between hard and soft credit checks later in this article.
Why Lenders Check Credit
Let’s be completely transparent: lenders loan money because it’s a good way for them to make money through interest and fees charged on the loan.
For all lenders, traditional and alternative, the decision to issue a loan is all about risk. Lenders want to work with low-risk borrowers that are more likely to pay back their loans. One of the ways lenders assess borrower risk is by running a credit check.
A low-risk borrower would be someone that has a solid credit score and flawless credit history. The ideal borrower would be an individual or business with no collections, judgments, charge-offs, or defaults on past loans. This borrower would ultimately present a lower risk to the lender.
On the other hand, a borrower with a low credit score may have past defaults on loans, missed payments, or late payments. All of this adds up to high risk through the lens of a lender, even if the borrower has a reasonable explanation for these negative credit report items.
Even borrowers with no credit history at all may have challenges when seeking a loan. Because these borrowers haven’t yet established themselves as responsible borrowers, lenders are wary … and unwilling to take on the risk of giving out a loan.
By checking credit, lenders get an overview of past payment history. Lenders use this information — along with other information such as annual income, revenue, and debt-to-income ratio — to determine if borrowers are able to make their loan payments. Borrowers that don’t meet the requirements of a lender may be turned down for a loan. In other situations, borrowers may be approved, but saddled with higher fees or interest rates. In many cases, they will have to put up collateral to secure the loan.
Now that you understand why lenders check credit scores, let’s explore the reasons why borrowers would seek out lenders that don’t perform credit checks.
Bad Credit
If you have a low credit score, you probably want to save time and avoid the hassle of getting rejected by lenders. You are looking for financing options that consider other factors for approval. When you suffer from bad credit, it’s not uncommon to be fearful of applying for a loan from lenders that put credit score first.
Unnecessary Inquiries
When you apply for a loan, a hard pull on your credit will show up as an inquiry on your credit report. Too many inquiries on a credit report may actually hurt your score. Some lenders won’t even work with you if you have too many inquiries. If you plan on applying for other types of financing in the near future — such as an auto loan or mortgage — these inquiries could throw up a red flag, even if you have a high credit score.
The good news is that most lenders perform a soft credit pull during the initial prequalification stage. A hard credit pull is performed later in the process, after you have decided to move forward with receiving the loan.
Hard VS Soft Credit Checks
We’ve mentioned hard and soft credit inquiries several times, but what do these terms really mean? How do these credit pulls affect your credit score and report?
A soft credit inquiry — or soft credit pull — does not affect your credit. Soft credit pulls are used to verify your identity and give lenders an overall picture of your creditworthiness. This is typically what is performed during the prequalification step to ensure you meet the basic requirements of the lender.
A hard credit inquiry — or hard credit pull — will have an effect on your credit. This credit pull gives lenders a more specific, detailed view of your credit history. Lenders can use this information to determine your loan approval, interest rates and/or fees, and if collateral or a cosigner is required.
When a lender performs a hard pull, your credit score can drop by as much as five points. If you’re shopping around for loans and have multiple hard inquiries, there could be a cumulative effect on your score.
The inquiry will also show up on your credit report. As previously mentioned, multiple inquiries may be off-putting to lenders. Some lenders even set limitations on the number of hard inquiries a borrower should have over a set period of time — i.e., no more than six over the last six months. If you exceed this amount, you may be rejected for a loan, even if you meet all other requirements.
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Learn more about hard and soft credit inquiries.
How To Check Your Credit Score
Before you apply for a loan, it’s always a good idea for you to know your credit score, even if you work with lenders that don’t consider personal credit a factor for approval. This is because most lenders at least perform a soft credit pull. By knowing your score, you’ll know if you meet the basic requirements of the lender. You may also find that your credit score is higher than expected, so you may opt to apply with lenders that offer more affordable loans with better terms.
In the past, you had to pay to receive your credit score or sign up for monthly subscription services. Now, there are online services that allow you to access your personal credit score at no cost. Some services even provide you with a free credit report and services such as credit monitoring, personalized ways to improve your credit, and financing recommendations.
Receiving your free score is easy. First, choose one or more options from our list of the best free credit score sites. Next, sign up and enter your personal information, such as full legal name and Social Security Number. Finally, answer questions to verify your identity, and you’re in!
The frequency of score updates and the credit agencies reported vary, which is why you may want to consider signing up for more than one service.
Once you’ve signed up, you can explore the website to learn more about your credit score, what’s on your credit report, and recommendations for your credit situation. If you find that your score is lower than expected, check out our easy tips for boosting your personal credit score.
Best Types Of Business Loans With No Credit Check
If you’re ready to move forward with a business loan that comes with no credit check, there are a few options available to you. Let’s break down the types of loans you may qualify for, how your funds can be used, and our top lender picks.
Term Loans
A term loan, or installment loan, provides you with a specific amount of money that is paid back over a set period of time through regularly scheduled payments. These loans come with fixed or variable interest rates. Portions of each payment are applied to the loan balance and the interest charged by the lender.
Maximum borrowing amounts, payment terms, and interest rates vary by lender. For most term loans, a credit check is normally required. However, there are exceptions to this rule, including the fixed-rate business loans offered by American Express.
Recommended Option: American Express Business Loans
Through American Express Business Loans, you can receive between $3,500 and $50,000 to cover your business expenses. All loans come with a fixed interest rate from 6.98% to 19.97%. Repayment terms of 12, 24, and 36 months are available. No collateral is required, and you can be approved in just seconds.
When you apply for an American Express Business Loan, a credit check isn’t required. What’s the catch? You have to be a pre-approved Business Card member to qualify. Since the company already has your credit information on file, an additional credit check is unnecessary.
Applying for your loan is easy. You can log into your account to find out if you’re pre-approved. If so, you’ll input the total borrowing amount up to your pre-approved limit, select your payment option, and provide additional information about your business. Once approved, you’ll receive your funds in just 3 to 5 business days.
Short-Term Loans
With a short-term loan, you’ll receive a lump sum of money that will be repaid over a set period of time. While many short-term lenders have terms up to a year, more lenders are extending repayment terms to up to 3 years.
The main difference between a short-term loan and other loans is that most use a factor rate instead of an interest rate. The factor rate is a multiplier that is used to determine the total cost of your loan. For example, let’s say you need a loan of $10,000. The factor rate determined by the lender is 1.2. Multiply this rate by your borrowing amount, and you’ll see that the total cost of the loan is $12,000. In other words, you will pay $2,000 to take out the loan.
Repayment terms are daily, weekly, or monthly, and your factor rate varies by creditworthiness or the performance of your business.
Recommended Option: PayPal Working Capital
If you use PayPal for your business, you may qualify for a short-term loan from PayPal Working Capital. For your first two loans, you can borrow no more than $125,000. After these loans, you’re eligible to receive up to $200,000. Your maximum borrowing amount can be up to 35% of the sales processed through PayPal over the last year.
When you receive a loan through PayPal Working Capital, you pay just one fixed fee. The factor rate ranges from approximately 1.01 to 1.58. Your payments are automatically deducted daily based on a percentage of your PayPal sales. Maximum repayment terms are 18 months.
Your personal and business credit scores are not checked by the lender when you apply for PayPal Working Capital. However, you must have a PayPal Business or Premier account that’s at least 3 months old to qualify. You must also process at least $15,000 annually on a Business account or $20,000 annually on a Premier account to qualify.
Recommended Option: American Express Working Capital
If you need to pay your vendors but your cash flow is lacking, American Express Working Capital can help. With this loan, you can receive between $1,000 and $750,000 to pay your vendors.
You can sign up for repayment terms of 30, 60, or 90 days. You’ll pay just one fixed fee for borrowing. Fixed fees range from 0.6% to 5.25% of the borrowing amount. There are no origination fees and no collateral is required.
Loan proceeds can only be used to pay your vendors. The American Express Working Capital platform makes it easy to add your vendors and choose how much they are paid. Your vendors will receive all payments within 2 business days.
At the end of the term, your loan amount and the fixed fee are debited from your bank account. You can pay as many eligible vendors as you choose up to your available borrowing amount.
To qualify, you must be an American Express Business Card holder. Because Amex has your credit information on file, a new credit check is not required. You must also be in business for at least 2 years and have annual business revenue of $200,000 to qualify.
Lines Of Credit
If you need a flexible form of financing, consider applying for a line of credit. A line of credit is a form of revolving credit that can be used for any business purpose, from purchasing supplies and inventory to covering an emergency expense.
A line of credit works much like a credit card. However, instead of swiping your card for purchases, you can initiate draws from your account. This means that money will be transferred from your line of credit to your business bank account. You can withdraw as much money as you need up to your credit limit, and you can make multiple draws if needed.
Your lender will charge interest and/or fees only on borrowed funds. As you pay back your line of credit, funds become available to use again.
Most lenders that offer lines of credit do perform credit checks. However, you can prequalify with many lenders with just a soft credit pull. Some lenders don’t even consider credit an important factor and instead look at the performance of your business when determining whether you qualify and the amount of your credit limit.
Recommended Option: Fundbox
With Fundbox, you can receive a line of credit up to $100,000. Repayment terms are 12 or 24 weeks, with draw-fees starting at 4.66%. You repay your line of credit through weekly ACH withdrawals.
To qualify for a Fundbox line of credit, you must have a business based in the United States, a business checking account, and at least $50,000 in annual revenue. You must also have activity for the last two months in a supported accounting software. If you don’t use accounting software, you must submit business bank accounts from the last 3 months.
When you submit your application with Fundbox, a soft inquiry is performed. A hard inquiry is performed only after you draw funds for the first time. After this, all inquiries will be soft and will not affect your credit.
Equipment Financing
If your business needs updated equipment or you need to add more equipment as part of an expansion, consider equipment financing.
With equipment financing, you can receive the money you need to purchase long-term equipment, from heavy machinery to company vehicles. You’ll be able to put the equipment into use immediately without having to pay the full costs up front.
With an equipment loan, you’ll typically be required to pay a down payment of 10% to 20% of the total cost of the equipment. Once you’ve made your down payment, the lender will loan the rest of the money, which you repay through scheduled weekly or monthly payments.
Each payment will be applied to the balance of the loan, as well as to interest or fees charged by the lender. Once you have paid off your loan, you’ll be the owner of the equipment. You can continue to use the equipment, trade it in for an upgrade, or sell it outright.
You may also consider an equipment lease. Like an equipment loan, you’ll pay a down payment and put the equipment into use immediately. You’ll also pay the lender through weekly or monthly payments.
However, you’ll only make these payments through the terms of your lease — usually 2 to 3 years. Once your lease is over, you can sign a new lease for new equipment, or you may have the option to purchase the equipment you have with a lump sum payment.
Can’t decide between an equipment loan and an equipment lease? Learn more about the differences between the two to make the right choice for your business.
One of the best things about equipment financing, whether you sign a loan or a lease, is that no additional collateral is needed. The equipment that is being purchased is the collateral and can be repossessed by the lender if your loan goes into default.
Recommended Option: Currency Capital
Currency Capital is a platform for lenders that provide equipment financing. When you apply, Currency will connect you with a lending partner that best fits your needs.
Through Currency, you can receive between $5,000 and $2 million to finance your equipment. Interest rates are between 6% and 24%. Fees, buyout agreements, and additional costs vary by lender.
While Currency will only perform a soft pull to match you with a lender, it should be noted that lenders interested in funding your loan may perform a credit check. Make sure to read all policies and fine print carefully before moving forward with your matched lenders.
Accounts Receivable Financing & Factoring
Accounts receivable financing is a unique loan option. If you have unpaid invoices that are causing cash flow issues, this type of financing could be the right solution for you.
With invoice factoring, you receive a lump sum of money for your unpaid invoices. The lender collects payment from your customer and pays you the remaining amount of the invoice, minus any fees charged for the service. With invoice discounting, you can also receive a lump sum for your unpaid invoices. However, you are responsible for collecting money from your customer and paying back the loan, plus any applicable fees.
With accounts receivable financing, your unpaid invoices are the collateral. Your credit score is not a factor for most lenders. Instead, the quantity and quality of your invoices are what are considered for approval.
Recommended Option: Lendio
Lendio is a loan aggregator that works with over 75 lending partners. Through Lendio, you can apply for many types of business loans, including accounts receivable financing.
Through Lendio partners, you can receive up to 80% of your unpaid invoices up front with repayment terms up to 1 year. Factor rates start at 5%, and you can receive your cash in as little as 72 hours.
One thing to note about using Lendio is that a hard credit pull is not performed, but a soft credit inquiry is used to connect you with lenders. Depending on the lenders you’re matched with, a credit check may be required during the application process, so make sure you read all documents and policies if you want to avoid a hard credit inquiry.
Best No Credit Check Options For Startup Loans
Getting a loan to fund your startup costs is already a tough task. Finding a lender that doesn’t perform a credit check can make it even more difficult. Read on to explore the types of financing available to startups and our recommended no credit check lenders.
Rollover As Business Startups (ROBS)
A unique way to fund your startup is with a Rollover as Business Startup plan, or ROBS. With this type of funding, you use the money in your retirement account to fund your business.
Here’s how ROBS works. You form a new C-Corporation. Then, you create a 401(k) or another retirement plan for your new corporation. The next step is to roll over the funds from your existing retirement account into the new 401(k). These funds are used to purchase stock in the corporation. The proceeds from the sale of stock are then used to fund startup costs.
The great news about a ROBS plan is that this isn’t a loan. You aren’t “borrowing” from your retirement account, and you aren’t taking money from a lender, so there’s no interest to worry about. Because of how the transaction is set up, you also won’t have to pay taxes or early withdrawal penalties like you would if you simply took the money from your retirement account.
However, a ROBS plan isn’t without its drawbacks. If your business fails, your retirement money is gone. Because of all of the paperwork and legal requirements, it’s also necessary to hire a ROBS provider, which will charge a setup fee and monthly maintenance costs.
Done right, though, a ROBS is a great way to finance your startup using your own funds. You’ll save money on interest and won’t have to worry about qualifying with a lender. Because you’re rolling over your own retirement funds, no credit check is required.
Recommended Option: Benetrends
When it comes to ROBS providers, you won’t find a more experienced one than Benetrends. Benetrends created the Rainmaker Plan and was the pioneer of ROBS. Since 1983, Benetrends has secured $4 billion in funding for over 15,000 business owners.
To qualify for the Benetrends Rainmaker Plan, you must have an eligible retirement account with at least $50,000. Benetrends has an easy four-step process to help you receive your funding in as little as 10 days.
Benetrends charges a setup fee of $4,995 to start your customized ROBS plan. After this, a monthly maintenance fee of $130 is required. With Benetrends, you’ll receive audit protection, compliance, and a team of certified in-house professionals to help create and maintain your plan.
Crowdfunding
The rise of the internet has made life easier than ever. We can pay our bills online, shop, and even find our own investors through crowdfunding.
With crowdfunding, you can raise money to fund your startup by finding your own investors. Through an online platform, you give your pitch about your new business. Then, simply share your campaign through social media, email, and all over the web to get interested investors to contribute to your business.
When running a crowdfunding campaign, business and startup owners offer investors some sort of perk or incentive for investing. In many cases, equity is offered in exchange for an investment. For other businesses, offering some sort of reward — such as a free or reduced-price upcoming product — is enough to entice investors.
One of the best things about crowdfunding is that requirements are much different from traditional business loans. Most crowdfunding platforms do not require a set time in business, a personal or business credit score, or even an annual business revenue to launch a campaign.
Recommended Option: Kiva US
Through Kiva US, you can borrow up to $10,000 to be repaid over 6 to 36 months. The maximum amount you can borrow is based on the age of your business. For business ideas, only $1,000 can be borrowed. For businesses up to 3 months old, you can raise up to $5,000. If your business is in operations and bringing in revenue, you can receive the maximum amount of $10,000.
One of the best things about Kiva is that you won’t have to pay any interest on the borrowed funds. There are also no additional fees for borrowing.
Kiva does not require a credit check. Instead, once your application is approved, you will enter a 15-day private funding period. During this time, you’ll need to rally between 5 to 30 friends, family members, and colleagues to donate to your fund. After this period, your campaign will go live to the public, and you can interact with potential investors. When all money has been raised, you’ll receive your loan through PayPal within one week.
Do Banks Offer No Credit Check Business Loans?
Receiving a loan through a bank is notoriously difficult. Because bank loans have such favorable terms and low interest rates, these institutions only want to work with the most creditworthy, low-risk borrowers.
It should come as no surprise, then, that business loans through banks require a credit check. For most bank loans, a minimum credit score of 700 is preferred.
If you don’t qualify to receive a bank loan, you do have other options. The most affordable loans, such as Small Business Administration loans, have more flexible requirements than bank loans but do require a credit check. Alternative lenders may also have less stringent requirements, but a soft credit pull is typically customary during the prequalification process. Many lenders also perform a hard credit pull before approving your loan.
Final Thoughts
Finding a business loan with no credit check can be a daunting task, but it’s not impossible. Before you apply for these loans, just be aware of the higher costs, additional requirements, and other special considerations. Remember, your goal is to find an affordable loan that gives the best return on investment so you can launch or build your business without taking on unnecessary debt.
Erica Seppala
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