While having bad credit can make it more difficult to start a business, it doesn’t make it impossible. If you are truly dedicated to the idea of entrepreneurship, there are some ways to help you get the financing you’ll need for your business.
First, reevaluate your funding plan. Studies show that credit card and bank loans account for only 25% of the total funds you’ll need. This means that 75% of the money you need won’t rely directly on your credit score, which is good news! However, that also means that you’ll have to convince a lot more people that your plan is solid to get funded, so make sure your business plan is polished.
To get the other 75% of funding, experts recommend that you start by asking your friends and family to invest in your business. It is reported that 50% of all business owners get financial help from friends and family. Your loved ones most likely won’t look into your credit score, so they might be easier to receive funding from.
However, don’t forget that this is still a loan, and they expect to be repaid. Talk with your potential donors about a repayment schedule and possible interest rates to make sure that you maintain good relationships with these investors. These relationships can be valuable to your start-up needs as well as your credit. If you choose to do so, you can hire a loan management company to help you report these personal loans to the Credit Bureau, which will help boost your credit over time (as long as you don’t default).
If you still need more funds, the Internet is a great resource to find private lenders. Sites like Prosper.com and Count-Me-In.org are great sources of capital for people with bad credit and they will also report your timely payments to the Credit Bureau. Take some time to compare different rates though to make sure you’re getting the best lending deal possible.
Depending of your type of business, you may also be eligible for state or federal government grants, so look into what’s available where you live.
Once you’ve received the initial financing, make sure to establish business credit that is not linked to your personal credit. Experian will calculate your business’s credit score based on credit obligation information from your company’s suppliers and lenders, public records and the company’s background information. If you can establish good credit with your business, you will be eligible for more and better loans if you apply as the business rather than an individual.
While you should be prepared to pay higher than average interest rates, these options should allow you to obtain the capital you need more easily.