How to Start a Business with No Money and Bad Credit

Updated: March 21, 2024 Author:

    If you’re looking to start a new business but have poor credit and limited funding, it may seem like an impossible task. However, some of the most successful entrepreneurs have been in this situation, and with hard work and some clever funding tips you can turn your business dreams into a reality.

    In this article, we’ll inform you of everything you need to know when it comes to starting a business with no money and bad credit, including information on qualifying for small business loans, other funding options available, some tips on how to improve your credit score, as well as ideas for raising some funds for your new business.

    Can I Qualify for a Small Business Loan with Bad Credit?

    One of the best ways to kick-start your new business without significant funds behind you is to apply for a small business loan. But how is this possible if you have a low credit score?

    Some UK banks are often unsure of lending to small businesses; however, you may still qualify for a loan if you have a low credit score. Make sure to speak to your regular bank first, as they’re likely already familiar with your credit history, and banks are potentially more likely to lend to you if you’re an existing customer. 

    Consider the following points when applying for a small business loan, and be honest about your credit history and expectations:

    • Collateral may be required in securing a loan – examples of collateral could be property or inventory, which is a guarantee to protect the lender if the borrower defaults on a loan. Banks may charge a higher interest rate for unsecured loans if collateral is unavailable.
    • Don’t apply for lots of loans at the same time – attempting to secure multiple loans in a short time frame may negatively affect your credit score, so apply for one loan at a time to avoid further negative effects.
    • The amount you’re borrowing, terms, and interest rates will be based on your credit score and collateral – each of these elements will vary depending on how viable the bank deems you when assessing these criteria.

    What Other Funding Options are Available?

    Other funding options are available to you if you’re unsuccessful in qualifying for a small business loan from a traditional bank. 

    Take a look at the below options to see how you could qualify for additional funding for your new business.


    Crowdfunding is a popular way of raising capital for a new business and is typically carried out via online platforms such as Kickstarter or Crowdfunder UK. These platforms provide a space where you can fundraise and incentivise investors by providing equity or rewards in exchange for capital.

    Crowdfunding is typically used by start-ups or small businesses to access more funds than are achievable via small business loans.


    Microloans may be worth investigating if you don’t qualify for traditional loans. Microloans are generally used by those who lack collateral or steady credit history and are typically capped at around £25,000.

    Organizations such as Start Up Loans and Responsible Finance may be able to help if you’re interested in applying for a microloan in the UK.


    You may be eligible for a grant or bursary if you’re setting up a new business in a particular industry/sector within the UK. The government and private sector offer financial support to certain businesses deemed necessary in growing certain industries, and generally, businesses won’t be required to repay these funds.

    Take a look at some of these funding opportunities via the UK government’s business finance support finder.

    Family and Friends

    Many entrepreneurs starting a business reach out to family and friends for fundraising support when establishing a new business. This can range from gifted money to repaying loans with interest or providing an equity stake to those that invest in your business.

    Family and friends fundraising may also extend to fundraising within the community, particularly if your business will provide opportunities or services to those in the local area. 


    Bartering involves exchanging your skills or products for resources that will help you to kick-start your business. This is another useful alternative to typical fundraising options, allowing you to benefit from the skills you already have, and gain access to services that you may not have adequate funding for.

    This could involve providing your sales abilities in return for marketing material, for example.

    How Can I Improve My Credit Score?

    If you have your heart set on obtaining a traditional loan to grow your business, there are ways that you can improve your credit score to increase the chances of being eligible for a small business loan.

    Having a good credit score is also beneficial for other purposes such as applying for a mortgage or opening business phone contracts, so it’s worth considering how you can improve your credit score if possible.

    Request a free copy of your credit score from credit agencies such as Experian, Equifax, and TransUnion to get an accurate reading of your credit report, and check out the below ideas to help you improve your credit score:

    1. Check your credit report for mistakes: Small errors such as typos in your name or address can negatively impact your credit score and prevent lenders from refusing your applications. Ensure your current address and contact details are up to date and reach out to providers directly if you need to make any changes.
    2. Make sure utility bills are paid on time, every time: Making regular payments on-time help to improve your credit rating by showing lenders that you’re a reliable borrower. This will also help prevent your credit rating from worsening as late payments will negatively impact your credit history.
    3. Register on the electoral roll: Proving where you live can help to boost your credit score – this can be done even if you’re in shared accommodation or living with family/friends.
    4. Keep old credit accounts active: If a credit account is old and shows good credit history, this can really help to improve your credit score. Keep these accounts open and make sure any transactions you make on these accounts are paid off in full and on time.
    5. Consider opening a credit-builder account: These accounts can help to improve your credit score by offering low spending limits and high-interest rates. Only open one of these accounts if you’re confident you can make payments on time, as building up debts on these accounts can quickly worsen your credit rating.

    Saving Money to Start a Business

    While business loans and bartering opportunities are useful, there’s no doubt that raising capital will give you a significant head-start when starting a new business.

    Here are some useful strategies to help you save money for your business:

    Establish a Budget

    Decide on a budget for your business based on income, expenses and how much you’d like to save. This will help you to set realistic goals when it comes to saving money for your new business.

    Reduce Personal Spending

    Cutting spending such as eating out or subscription services can help you to save more funds for your business. You’ll be amazed at how quickly this money will add up and this will encourage you to maintain more sensible spending habits moving forward. 

    Set Up a Business Account

    Opening an individual account for your business will help avoid mixing your personal money with your business finances. Business accounts often provide other benefits such as access to accounting software, preferential business rates, and fewer tax headaches.

    Earn Extra Money 

    To earn some extra money on the side of your business, you could try freelancing or part-time work a few days a week. Anything extra that you can do to provide additional funds for your business will give your venture more stability in the long run.

    Keep Your Business Lean

    Keep outgoings low as your business starts out, and only spend more once your venture starts earning more money. Running before you can walk when starting a business is how many small companies fail early in the process.


    To summarise, it is possible to start a business with no money and bad credit, despite this raising some challenges. Explore alternative funding options, improve your credit score to improve your chances of raising capital for your business, and save money wherever you can.

    If you have bad credit and are concerned about qualifying for a loan, you can also compare loans using our comparison tool, specifically designed for people with low credit scores. This won’t affect your current score and will allow you to compare over 70 providers instantly. You could even qualify for same-day loan approvals.

    Get started with comparing loans by using our tool here.