How to Buy an Existing Business With Bad Credit

There are very few avenues to wealth in America besides owning your own business. There are two ways to own a business. You can start one from scratch or buy an existing one. To buy an existing business, you need capital. It is difficult to obtain capital to buy a business if you have bad credit, but it is not impossible.

Create a good business plan. This is the first step in your quest for financing. Most lenders will ask to see a business plan. A good business plan tells everyone that you know the business you want to buy and that you are capable of running that business. It also highlights the profitability of that business in the past and its future growth potential.

Go to family and friends for funding. This is the easiest way to find the capital to buy a business, but it will not apply to everyone. If you have family and friends who can finance you, go to them. They know you and won’t ask to see your credit history if you can convince them that the business you want to buy has been and will continue to be profitable. Having a good business plan helps in this area.

Get a bad credit business loan. They are available from your local bank for borrowers with bad credit history. They have higher interest rate charges and other fees, but your lender will gladly renegotiate the terms if you make your monthly payments on time.

Use micro lenders. Micro loans are special loans designed for borrowers who are unable to get loans from banks, and the Small Business Administration (SBA) guarantees them. These banks charge higher interest and other fees, and the limit for these loans is $50,000. Micro loans may not be available to you if you are buying a business valued at more than $50,000.

Borrow on your home. By taking out a second mortgage on your house or borrowing against your equity line of credit, you avoid credit questions. Banks will finance your business purchase if you use your house as collateral.

Get financed directly by the state or federal government. Various state and federal government programs have money available to finance your business purchase if that business meets certain criteria. Different departments give free grants to start a new business or purchase an existing business without the need for repayment. If you are a veteran, live in certain parts of the country or are involved in certain areas of research, the United States government will back your business purchase with a grant. See Resources below for additional information.


  • You can also finance your business purchase through your credit cards. This depends on the number of credit cards you own and your credit limits on those cards. Watch the interest rates on the cards if you decide to go this route. If you make your monthly payments on time on a business loan, you can renegotiate the terms of the loans within a year. This will lower your interest rate and monthly loan payment.