How to Get Business Funding with Bad Credit UK 2025

7 Funding Options for Bad Credit Businesses

1. Merchant Cash Advance (MCA) - Highest Approval Rate

Approval Rate: 75-85% (British Business Bank 2024)

MCAs are the most accessible funding for bad credit businesses because they're based on card sales, not credit score. If you process £5,000+ monthly in card payments, you likely qualify.

How it works:

• Borrow £3,000-£500,000 based on monthly card turnover
• Repay via daily percentage of card sales (10-20%)
• No fixed monthly payments - repayment flexes with sales
• Approval in 24-48 hours

Typical Terms:

• Factor rate: 1.15-1.45 (borrow £10k, repay £11.5k-£14.5k)
• Effective APR: 25-80% (expensive but accessible)
• Repayment period: 4-12 months

Requirements:

• Minimum £5,000 monthly card sales
• 6+ months trading history
• Active card machine
• Credit score: Not critical ✅

Best for: Restaurants, retail, any business with consistent card sales needing quick funding despite poor credit.

2. Invoice Finance - Asset-Based Lending

Approval Rate: 60-70%

Invoice finance lends against your unpaid invoices rather than credit score. If you have £50,000+ in outstanding B2B invoices, you can access 80-90% of that value immediately.

How it works:

• Upload outstanding invoices to lender
• Receive 80-90% advance within 24 hours
• Lender collects payment from your customer
• You receive remaining 10-20% minus fee

Costs:

• Advance fee: 1.5-4% of invoice value
• Service fee: 0.5-2% monthly
• Effective APR: 15-35%

Requirements:

• B2B invoices with 30-90 day payment terms
• Minimum £50,000 annual invoicing
• Trading 6+ months
• Credit checked but less critical than traditional loans

Best for: B2B traders, wholesalers, contractors with cash flow gaps.

3. Asset Finance - Equipment-Based Lending

Approval Rate: 65-75%

Borrow to purchase equipment (vehicles, machinery, computers) with the equipment itself as security. Lower risk for lenders means higher approval despite bad credit.

What you can finance:

• Commercial vehicles: £5,000-£100,000
• Machinery and equipment: £3,000-£500,000
• IT equipment: £1,000-£50,000
• Catering equipment: £2,000-£75,000

Typical Terms:

• Interest rate: 8-18% APR (higher for bad credit)
• Deposit: 10-30% of equipment value
• Repayment: 1-5 years

Best for: Businesses needing equipment, vehicles, or machinery where the asset provides security.

4. Peer-to-Peer Business Loans

Approval Rate: 50-60%

P2P platforms like Funding Circle, LendingWorks, and Folk2Folk match businesses with individual investors. More flexible than banks, higher approval for bad credit.

Typical Terms:

• Amount: £10,000-£500,000
• APR: 7-25% (risk-based pricing)
• Term: 6 months - 5 years
• Approval: 2-4 weeks

Requirements:

• Minimum 2 years trading
• Profitable or break-even
• Credit score 450+ (lower than banks' 650+ requirement)
• Strong business plan

Best for: Established businesses (2+ years) with poor personal credit but strong business performance.

5. Guarantor Loans - Personal Guarantee Support

Approval Rate: 70-80% (with suitable guarantor)

A guarantor with good credit (family member, business partner, friend) co-signs your loan, dramatically increasing approval chances.

Terms:

• Amount: £1,000-£100,000
• APR: 15-35%
• Term: 1-7 years

Requirements:

• Guarantor with credit score 700+
• Guarantor must be UK homeowner (usually)
• Your business: 6+ months trading

Best for: Businesses with supportive family/partners willing to guarantee, lower amounts needed.

6. Credit Unions & Community Finance

Approval Rate: 55-65%

Community Development Finance Institutions (CDFIs) like Responsible Finance providers focus on supporting local businesses, often overlooking bad credit if your business plan is strong.

Examples:

• Fair Finance (London)
• Business Finance for You (North West)
• Social Investment Scotland
• Community Savings Bank

Terms:

• Amount: £500-£150,000
• APR: 6-15% (cheaper than most bad credit options)
• Term: 6 months - 5 years

Best for: Local businesses, social enterprises, businesses in deprived areas.

7. Secured Business Loans - Property as Security

Approval Rate: 65-75% (if property available)

Using business or personal property as security reduces lender risk, enabling approval despite bad credit.

Terms:

• Amount: £10,000-£5,000,000
• APR: 5-12% (much lower due to security)
• Term: 1-25 years
• LTV: Up to 70% of property value

Best for: Property owners, large investments, equipment purchases, business expansion.

What Are Your Real Approval Chances?

Cost Comparison: Bad Credit vs Good Credit

Bad credit means higher interest rates. Here's what you'll actually pay:

£20,000 Loan Over 2 Years

• Good credit (750+): 6% APR = £21,250 total (£885/month)
• Fair credit (600): 15% APR = £23,100 total (£963/month)
• Poor credit (500): 28% APR = £26,240 total (£1,093/month)
• MCA (bad credit accepted): Factor 1.35 = £27,000 total (flexible daily repayment)

Cost of bad credit: £3,850-£5,750 extra over 2 years on a £20,000 loan.

How to Improve Approval Chances

Even with bad credit, you can significantly improve approval odds:

1. Show strong cash flow - 6-12 months bank statements showing consistent income
2. Provide business plan - Explain what funding is for and expected ROI
3. Offer security - Equipment, property, or guarantor
4. Apply for smaller amounts - £5,000 easier than £50,000
5. Choose revenue-based options - MCA, invoice finance look at sales not credit
6. Fix recent defaults - Pay off small CCJs (under £1,000) before applying
7. Apply strategically - Each rejection worsens credit; get pre-approval first

Red Flags to Avoid

Alternative Options to Borrowing

Before taking expensive bad credit funding, consider:

• Start Up Loans (government): 6% fixed APR, mentoring included (if eligible)
• Supplier credit terms: Negotiate 30-60 day payment terms
• Customer deposits: Take 30-50% upfront for projects
• Bootstrap: Organic growth without borrowing
• Investors: Equity investment vs debt (no repayment pressure)

Improving Your Credit for Future Funding

Steps to improve business credit over 6-12 months:

1. Register with credit agencies - Experian, Equifax, Creditsafe
2. Set up trade accounts - Pay suppliers on terms and pay on time
3. Use business credit card - Pay in full monthly to build history
4. Pay all bills on time - Even small late payments hurt
5. Keep credit utilization under 30% - Don't max out limits
6. Settle CCJs/defaults - Even settled marks improve score

Conclusion: Best Funding for Bad Credit

If you have bad credit and need funding in 2025:

• Fastest approval: Merchant Cash Advance (24-48 hours, 75%+ approval)
• Lowest rates: Asset Finance (8-18% APR with equipment security)
• Best for B2B: Invoice Finance (based on customer creditworthiness)
• Most flexible: MCA (repayment flexes with sales)

Key insight: Bad credit doesn't mean no funding. It means choosing the right TYPE of funding where your credit score matters less than your business performance.