Bad Credit Business Loans UK 2026: Options, Rates & How to Apply

Chandraketu Tripathi

Finance Editor, Kaeltripton

Published 5 Apr 2026

Last reviewed 4 May 2026

✓ Fact-checked

By Chandraketu Tripathi | Updated April 2026

A poor personal or business credit history does not close off all funding options for UK businesses. Specialist lenders, alternative finance providers, and government-backed schemes all offer routes to funding even with adverse credit. However, rates are higher — often 15-60%+ APR for the riskiest profiles — and terms are shorter. This guide covers every realistic option for UK businesses with bad credit in 2026, from secured lending to merchant cash advances.

Key Facts 2026

Government Start Up Loan: 6% APR — no credit score minimum | Iwoca, Capify: unsecured from ~15-60%+ APR | Asset finance: often easier to access than unsecured with bad credit | Soft search: check eligibility without damaging score

Bad Credit Business Loan Options UK 2026

Option	Typical APR/Rate	Security	Best For
Government Start Up Loan	6% APR fixed	Personal guarantee; no asset security needed	New businesses 0-2 years; borrow £500-25,000; also available with poor personal credit
Secured business loan	8-20% APR	Property or assets as security	Homeowner businesses; lower rates due to security; credit history less critical
Asset finance (HP/leasing)	8-25% APR	The asset being financed is security	Buying equipment, vehicles, machinery; asset secures the loan
Invoice finance / factoring	2-5% of invoice value	Invoices as security	B2B businesses with outstanding invoices; advances 80-90% of invoice value
Merchant cash advance	Factor rate 1.1-1.5x amount borrowed	Future card sales as security	Hospitality, retail; repaid as % of daily card takings
Unsecured business loan (specialist)	20-60%+ APR	Personal guarantee typically required	Established businesses; higher cost; last resort for bad credit
Iwoca Flexi-Loan	From ~2% per month	Personal guarantee	Faster-growing businesses; flexible repayment; 12 months+
Capify	Factor rate model	Future revenue	Established businesses with regular card/bank income; fast decisions

Government Start Up Loan UK — Best Option for New Businesses

The Start Up Loan programme is a government-backed personal loan for business purposes, delivered through the British Business Bank. Key facts: borrow £500-25,000 at a fixed 6% APR; personal loan (not a business loan); no minimum credit score — character and business plan assessed instead; repayment 1-5 years; free mentoring included for 12 months. Suitable for businesses trading for under 3 years. The 6% APR is far cheaper than any commercial alternative for businesses with adverse credit. Apply at startuploans.co.uk. Each business owner can apply individually — a partnership of two can borrow up to £50,000 combined.

How Lenders Assess Bad Credit Business Loan Applications UK

Factor	How It Helps Your Application	What Lenders Check
Trading history	Longer trading = more data; more confidence	Minimum 6-12 months trading for most specialist lenders
Revenue and cash flow	Strong revenue offsets poor credit	3-6 months of bank statements; monthly card/bank income
Personal credit of directors	Major factor — especially for unsecured loans	All directors typically credit-checked; any CCJs or defaults flagged
Business credit history	Separate from personal — check Experian Business	Late payment history; previous defaults on business accounts
Security offered	Property or assets dramatically improve approval odds	Title deeds; equipment valuations; invoice ledger value
Business plan (Start Up Loans)	Replaces credit scoring as primary assessment	Detailed plan required; free support available from delivery partners

Alternative Business Funding UK — Not Loans

Crowdfunding (equity): Crowdcube, Seedrs — raise equity investment; no credit check; give up share of business
Crowdfunding (rewards/donation): Kickstarter, Indiegogo — raise money pre-selling products; no credit check; no repayment
Angel investment: Private investors; no credit check; receive equity; requires strong pitch
Business grants: Innovate UK, Levelling Up Fund, local authority grants — free money; highly competitive; sector-specific
Revenue-based financing: Repaid as % of future revenue; no fixed repayment; credit less critical
Family and friends: Informal; no credit check; document any loan with a proper agreement to avoid disputes

Frequently Asked Questions

Can I get a business loan with bad credit UK?

Yes — options include the government Start Up Loan at 6% APR (assessed on business plan, not credit score), asset finance secured against equipment or vehicles, invoice finance if you have outstanding B2B invoices, and specialist unsecured lenders like Iwoca, Capify, and Funding Circle. Rates are higher than for businesses with good credit. Always start with the government Start Up Loan if eligible.

What is the government Start Up Loan UK?

The Start Up Loan is a government-backed personal loan for business purposes, offered at a fixed 6% APR with repayment over 1-5 years. You can borrow £500-25,000. There is no minimum credit score — applications are assessed on character and business plan quality. Free business mentoring for 12 months is included. It is available for businesses trading for under 3 years. Apply at startuploans.co.uk.

Does applying for a business loan affect my personal credit score UK?

Many business loan applications involve a hard credit search on the business owner's personal credit file, which temporarily reduces your personal credit score. Use soft search eligibility checkers (Iwoca, Funding Circle, Tide) before making formal applications to check likely approval without impacting your score. Multiple formal applications in a short period can signal financial distress and reduce approval odds.

What is a merchant cash advance UK?

A merchant cash advance is an advance of cash repaid through a percentage of your future card sales. Rather than fixed monthly repayments, the lender takes a small percentage of each card transaction until the advance plus a factor fee is repaid. This suits businesses with variable income (restaurants, retail) as repayments flex with revenue. Factor rates typically range from 1.1-1.5x the amount borrowed — equivalent to very high APR if repaid quickly.

Related Guides

Sources: British Business Bank, Start Up Loans (startuploans.co.uk), Iwoca, Capify, Funding Circle, Which?, FSB. Always compare. April 2026.