Summary
- High-risk business loans are designed for industries or borrowers considered more likely to default.
- Rates often range from 20%–80% APR with shorter repayment terms.
- Multiple funding alternatives exist, such as online lenders, MCAs, equipment financing, and hard money loans.
- Improving business credit and documentation can significantly enhance approval chances.
What Is a High-Risk Business Loan?
A high-risk business loan is financing offered to businesses that traditional banks consider more likely to default. These loans typically feature higher interest rates, shorter terms, and more frequent payments. Lenders categorize risk differently, so one lender may decline a business while another approves it.
Which Types of Businesses Are Considered High-Risk?
Certain industries are more likely to be placed in high-risk categories, such as:
- Adult entertainment
- Airlines & ticketing agencies
- Bail bonds
- Bankruptcy attorneys
- Casinos & online gaming
- Collection agencies
- Cryptocurrency businesses
- e-Tobacco & vape shops
- Financial counseling, credit repair, debt settlement
- MLMs
- Pharmacies (especially online)
- Pawn shops
- Travel & ticketing companies
- Timeshare companies
- Used car dealerships
Being labeled “high-risk” is not a legal designation — it’s determined by lender policies, often influenced by industry performance, regulatory requirements, or chargeback rates.
Why Lenders Consider Some Businesses High-Risk
- High failure rates: Some industries statistically close more often.
- Heavy regulation: Compliance issues increase uncertainty.
- Cash flow instability: Seasonal or unpredictable revenue.
- Fraud or chargeback risks: Makes payment processing difficult.
- Economic sensitivity: Some industries suffer during downturns.
- High litigation risk: Liability concerns raise lender risk.
Funding Options for High-Risk Businesses
Online Business Loans
Many online lenders offer flexible options with fast approval times. Some specialize in industries traditional banks avoid.
Merchant Cash Advances (MCAs)
MCAs offer quick funding based on future credit card sales. Payments are deducted daily or weekly. This option works best for businesses with steady POS transaction volume.
Invoice Factoring
Useful for B2B companies. You either sell invoices at a discount (factoring) or borrow against them (financing).
Equipment Financing
Collateralizing equipment makes this option accessible even for high-risk businesses.
Hard Money Loans
Popular among real estate investors and niche businesses. These lenders focus on the value of the deal, not credit scores.
Funding Options Comparison
| Option | Approval Time | Typical Rates | Pros | Cons |
|---|---|---|---|---|
| Online Loans | 1–7 days | 15%–50% APR | Fast, flexible | High rates for some borrowers |
| Merchant Cash Advances | 1–3 days | 20%–80% APR | Very fast funding | Expensive, frequent payments |
| Invoice Factoring | 1–3 days | 1%–5% per month | No debt added | B2B invoices only |
| Equipment Financing | 3–14 days | 8%–30% APR | Collateral helps approval | Equipment only |
| Hard Money Loans | 1–7 days | 12%–25% | Asset-based approvals | High rates, short terms |
How to Qualify for a High-Risk Business Loan
- Meet revenue and time-in-business requirements. Many lenders want at least $100K+ annual revenue and 6–12 months in business.
- Prepare 3–6 months of business bank statements.
- Highlight collateral. Equipment, inventory, or contracts strengthen your application.
- Understand industry risk. Ensure your SIC/NAICS code is correct.
- Be ready with extra documentation. High-risk lenders may request financials, projections, or business contracts.
Pros & Cons of High-Risk Business Loans
Pros
- Fast approvals
- Flexible qualification criteria
- Wide range of financing options
- Can help build business credit
- Useful during growth or cash-flow gaps
Cons
- Higher interest rates and fees
- Shorter repayment terms
- Risk of payment strain
- May require personal guarantees
- Daily/weekly payments may impact cash flow
Alternatives to High-Risk Loans
Business Credit Cards
Great for startups or industries banks avoid. Often based on personal credit and income.
Secured Business Credit Cards
Best for owners with low credit scores rebuilding credit.
Crowdfunding & Peer-to-Peer Lending
Good for unique products, creative pitches, or strong community support.
CDFIs & Microloans
Nonprofits offering smaller loans with more flexible criteria.
How to Avoid Predatory Lenders
- Research lender reputation
- Verify address and contact information
- Avoid “guaranteed approval” claims
- Never pay upfront fees
- Review all terms carefully
- Get everything in writing
- Watch for pressure tactics
- Compare total repayment cost
Building Business Credit
- Separate personal and business finances
- Form an LLC or corporation
- Obtain an EIN and D-U-N-S number
- Work with vendors who report to credit bureaus
- Monitor your business credit reports