It’s not always easy to start a business. There are challenges to any startup, no matter how small or simple. Even if it’s a service business, with very little initial cost, a good amount of sweat equity is necessary to get the word out and get it going. But most businesses do require some level of investment. And, for some individuals with less than perfect credit, this presents another roadblock. But even a poor credit rating doesn’t mean you can’t obtain financing for your startup, you just have to know how to go about it.
How Entrepreneurs with Bad Credit can Finance a Startup
With a little creativity and can-do spirit, you can turn just about any skill set into a business. But one obstacle which stands in the way for some entrepreneurs is startup capital. They need money to really get going and without it, the possibility of making it happen is simply too thin. Some choose to take a loan from their retirement account. The justification being they’ll pay themselves back, with interest. But the reality is the power of compound interest is severely compromised.
For better or worse, your credit score has become your “SAT score” when it comes to financing. If you have a high score, you’ll have a pretty easy time getting credit offers from a wide variety of funding sources. If your score is low or nonexistent, however, you won’t. But a low score isn’t something you can run away from, and even if you avoid it, it won’t go away. The trick is to fund your business in ways that actually get your score back on track so when you’re ready to move your business to the next stage, your score will start opening doors rather than getting them slammed in your face. –Entrepreneur.com
Borrowing from family and friends is another option, but one that typically doesn’t end well. In fact, the risks of forming any partnership are real and are more complicated when it’s with family and friends. Besides, there are plenty of other sources. And, these won’t put your personal relationships on the line or risk your retirement money. You just need to do a little prep work, be persistent, and stay positive. Here’s how entrepreneurs with bad credit can finance a startup:
- Order copies of your personal credit reports. Visit Annual Credit Report.com to obtain free copies of your credit files from Experian, TransUnion, and Equifax. The federal government allows each individual to order free copies once per year. This is the first thing you need to do in order to obtain financing for your business startup.
- Review each bureau’s credit file very carefully. Although each credit reporting agency will differ slightly in its contents, you’re looking for inaccuracies, inconsistencies, and other errors. Chances are excellent you’ll discover problems with one or more credit reports. When you do, file a detailed dispute through the mail and not online. By law, any inaccuracies must be removed and this will help to improve your overall credit score.
- Obtain positive recommendations from others. Now, obtain documentation as proof of payment for as many accounts and contracts as you can find. This includes your mortgage or rent, insurance, utilities, mobile phone, and so on. You’ll show these to lenders to help bolster your chances of loan approval. You might have to pay a higher interest rate or pledge some collateral but you’ll secure startup financing.
- Turn to the Small Business Administration for more resources. It’s also helpful to visit the Small Business Administration for more information and resources. While the SBA is not a lender, it does provide a lot of helpful information.
What sources of financing have you used to start a business? Are there other resources worth trying? Please share your thoughts and experiences by leaving a comment!
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