Canadian Labour and Business Centre
Canadian Labour and Business Centre Canadian Labour and Business Centre

Need a Business Loan but Have Bad Credit

In recent years, there have been more small business enterprises cropping up all across Canada, including online ventures. One reason behind this is perhaps due to the fact that securing financing has become less difficult and more small businesses are being approved each year with bad credit loans that you can apply online for in Canada. Another alternative for Australians is to read the Aussie version of the website here at

It is not just business owners with high credit scores who are being approved, even business owners with poor credit are securing the financial loans they require to start up their businesses. If you need a business loan and have bad credit there are still opportunities that exist that will allow you to go into business on your own, it just requires some creative thinking.

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What is Bad Credit?

If you have a history of missing payments, being late on payments, or paying less than the agreed upon amount, then it is likely that you have what is known as bad credit. Essentially, you are not living up to arrangements you have made with your financial lender with regards to consistently paying back your loan. All of these factors are combined to form your credit history score, and the lack of payments negatively affects your credit rating.

When the time comes to apply for additional loans, the lender can access your credit history and will see that you have bad credit. This makes it less likely to secure future loans. Even if you are able to take out a loan, regardless of your bad credit rating, you may still find that you will have to pay higher interest and fees. This is an added security measure that the lenders put in place to encourage you to pay on time, as well as in the event that you continue to neglect your loan. The Subprime Mortgage Crisis was a prime example of bad credit loans in the United States.

Your poor credit history will follow you for at least 7 years and in order to improve your rating you have to demonstrate that you can be relied on to pay back you loan in a consistent manner over a long period of time.

With that said, if you need a business loan and you have bad credit, what options do you have?

Incorporate & Obtain Credit to Open a New Business

One major way to secure a loan for your business, despite having bad credit is to take steps of incorporating your business. With this strategy what you are doing is distancing yourself from your bad credit history by having your business become a separate legal entity, which is not associated with your personal credit rating. This means your credit will not reflect upon the other business partners and removes you as a liability factor.

There are a few different types of types of incorporation, including public corporations, “closely held’/S-Corporations, and limited liability corporations (LLC’s).

Each of these scenarios comes with their own pros and cons – starting with taxable considerations. For your individual business needs, you will want to closely look at all of these implications and choose which strategy is in the best interests of your company. Seeking the assistance a financial consultant, an accountant, or a lawyer is advisable in these situations.

Whether your company will be incorporated within a specific province or in all of Canada, you will want to ensure you are following all of the appropriate steps to set this up. It is important to be aware that the specifics of each step for incorporating your business with bad credit loans in Canada may be different in each province.


In order to incorporate your business, you will need to secure the necessary financing. Perhaps you are worried that because of bad credit this will prove to be very challenging. Despite the struggling economy and your financial situation, incorporating your company, in order to secure a business loan is possible. Again applying for your loan and securing the funds you require can be done; you will just have to look at what options exist for bad credit borrowers.

Funding Options for Business Owners with Bad Credit

  • Looking beyond typical credit cards and bank loans

Other loan options exist outside of typical bank loans and credit cards. For other types of loans you do not need to have good credit history to secure the funds you require to open your business. Some bank options, such as a line of credit based on the home equity of your home is an option, however this can also be quite risky.

Looking to credit cards that are designed specifically for Canadian individuals with bad credit are also good options of securing loans. Generally, with these cards, you will have a lower credit limit to start as well as high interest rates. These features again, are put in place to offset the potential risk to lenders who are taking a chance on borrowers with less than stellar credit scores.

  • Loans from relatives/friends

Turning to friends and family members for loans is not unheard of option. In addition to not focusing on your credit rating, your loved ones also have high hopes for you and very much want to see you succeed in your business endeavor. As a result, they are often willing to help you out with the funds.

The recent average interest rate based on a small business bank loan has been as high as 8.4% on loans under $100,000 and 7.6% for loans reaching as high as $1 million. Loans that you receive from friends and family will carry interest rates that may vary, depending on the terms of agreement. However, it is also likely that you will receive a reasonable interest rate from your family and friends as they have a personal connection with you.

  • Web-based lenders (Micro-lenders)

If you know you will not be able to secure funding for your business by going the traditional bank route, you can also look to online ‘peer-to-peer’ lenders for assistance. These sources offer micro-loans to small business entrepreneurs based on values that generally range between $5,000 and $25,000.

There are also cash advance companies and some online peer-to-peer funding sources that will require very high interest rates. However, these sites have been known to support borrows with less than perfect credit, and this may be an appealing offer regardless of the high interest rates.

  • Grant Programs

In some cases, you may be eligible for local grants that are available to some business owners, depending on the type of business they are operating. Common business sectors that typically qualify for specific grants may include Healthcare, Technology, and Retail businesses that are situated in lower-income locations.

With many of these loan options, you may be ok with paying higher interest, because you are able to be more flexible in your payments instead. This is perhaps a trade-off that business loan borrows with bad credit will be willing to accept in order to pursue their business goals.

If you need a business loan and have bad credit, do not give up - there are alternative options that exist to provide you with the funding you require. By thinking a little outside of the box, you can still turn your entrepreneurial dreams in a reality.