Can bad credit keep you from starting a business?
If you have an idea for a small business, then there shouldn’t be anything to stop you from getting it all started. If your idea weighs up, you’ve tested it and can see a gap in the market, they what is stopping you?
Money. Money seems to be always be the thing that is standing in the way. Bad credit can be the end of your business before it begins.
If you don’t have money getting your business off the ground is going to be a problem. There aren’t many businesses that you can start with very little inventory or supplies. Do you have savings you can look to or investors that you can borrow from?
No. it always leads back to money.
But what about your credit rating? You can just get a loan from the bank, right? Not always the case. Can it be what is holding you back from getting your business off the ground?
Bad credit is usually classed as a credit score of less than 700, and it can be a bit of a dilemma in everyday life, let alone if you’re trying to make some changes and start a business. There are people that do start a business when their credit is less than perfect, so it should never be considered impossible. However, it can be a lot harder to get a business off the ground in this state, especially if this is your first business.
First of all, you need to ask yourself why you got into such bad credit in the first place? If it is down to budgeting and spending more than you were able to pay back, then this kind of thing needs to be looked at. You can learn to budget and learn to get organized with your finances. If you were able to get a bank loan for your business, then you don’t want to miss making any of the payments. If your bad credit was the result of bad investments, then it can just be one of those things. You just have to learn from it and move on so that you don’t make similar situations again.
Many banks are unlikely to lend money to you if you have bad credit. Though it is still worth speaking to someone in person. They do have algorithms that will score you and your likelihood of getting a loan. But it can be worth showing your business plan to gain some traction. So make sure that your business plan stands up to scrutiny and that you understand the figures. If it is a no-brainer that the business will make money, then the bank may be more understanding as it lowers the risk.
Although the traditional high street banks will still quite often turn you away if you approach them for funding with bad credit, alternative lenders are far more likely to see things differently. Some lenders now even specialise in providing bad credit business loans.
Online lenders, much like New Horizons Loans, may be able to offer one of their bad credit loans. But you have to check the fine print on it all. Sometimes they will only be available to small businesses that are already established and have a proven track record of making payments on time. They often focus on cash flow as the deciding factor of if they will lend to you or not. It could still be worth perusing, though, as long as you have worked out the numbers and checked that they all add up.
Look at non-profits and micro-lenders
There are still avenues when it comes to starting a business with bad credit. The alarm bells start ringing for banks if there are big risks involved. So you want to look for people and places that have a different kind of risk analysis. Quite often this means looking to nonprofit organizations, as well as micro-lenders.
There can be many entrepreneurs that are wanting to get involved and help. A business development officer I once read about in the San Francisco and bay area looked to help the local communities launch their businesses. She looked to help businesses in low-income areas and only those businesses run by women. So you never know, there could be someone out there that is looking to do something else similar. You could even get a better deal with them. They might be the person getting the money for you, but they will be trying to help you and you’re likely to get a lower interest rate from them rather than a higher rate than a bank could give you.
Improve your chances
The main thing is having a stellar business plan. That is the main thing that is going to help you to get your business off the ground. But you should also be actively trying to increase your credit rating. If lenders can see that it is getting better, then that is a good thing for them to see. So take steps to get your current financial situation in order so that your credit rating doesn’t get worse. Here are some things that you can be looking to do to improve your financial and credit rating situation.
Take small steps to fix your credit
Have you got any existing debt on credit cards, for instance? If you have, it is a good idea to make a plan to get it paid off. As long as you are making your monthly repayments, then your credit score isn’t going to get worse. It will only get worse if you apply for something new and get declined, as well as miss your repayment dates. So those things need to be looked at. Lenders want to see that you make the payments to them, otherwise you are going to be a much higher risk to them. Lenders don’t want to have high risks. They don’t mind making interest off you, of course. So showing you can make your monthly repayments is important.
You need to show that you are serious about improving your current financial situation. You could look to negotiate a deal to pay off your card or to settle any collections that you might have against your name. Doing things like that and then sticking at it is a good way to show that you mean business to lenders. This may not work for banks, but for micro-lenders or nonprofit organizations that are trying to launch people into business, it can be a really good sign. They want to know that you’re serious about the business you have planned. And by getting your money into order, it is showing that you are serious and you’re making changes.
Don’t apply for anything new
One way to instantly make your credit worse, that often gets forgotten about, it applying for a new credit card or loan. If you have bad credit, then it is unlikely that you’ll get approved for it. And any time that you are declined, it shows up on your credit score. You want to actively make your score better. So avoid applying for something like a new mortgage or credit card while you’re trying to make your score better.
Analyze your credit score
There are several companies online that allow you to check your credit score online for free. But instead of simply checking the score, look at all of the information that has been provided. If any of the records that they have are incorrect or weren’t made by you (for example, if someone took out a paycheck loan in your name), then it can be edited. If you can show that it wasn’t you, then it can be removed from your record, which in turn, will increase your credit score. So although it may feel like you’re clutching at straws, it can help your credit score in a big way. It has to be worth a try.
Consolidate debt
If you have debt in several places, then it can be good to consolidate your debt into one place. It can mean paying less interest over all, as it will be one set rate. But it can also mean that you might have a grace period where you don’t have to pay any interest at all. Just do some research and find out if there is a way to consolidate that will work for you.
It takes time
Whether you’re tying to fix your credit to launch a business, or just want to fix your credit to be able to have a less stressful life, then you need to remember that it does take time. Commit to it and it will get you there slowly but surely. The start can be difficult as it will mean plenty of changes in your finances and lifestyle. But once you have your business up and running and you’re generating money, it can make a massive difference. From there, a whole new world of financing options can open up. For a small business, cash is king. If you are able to demonstrate that your business can keep a positive trajectory with its cash flow, then it is likely to override any credit score. So if you are someone with bad credit that wants to get into business, it doesn’t have to be the end of things. It is possible, with some commitment, hard work, and dedication.
