Your heart is set on the perfect business venture. The plans are nearly complete and you’re highly motivated and ready to roll. But if you have bad credit, you may be thinking that your future business is simply an unreachable dream. Have you asked yourself, “Can I start a business with bad credit?” You will be happy to know that the answer is yes. While a poor credit history may make obtaining sufficient funding difficult, it’s not impossible. With a little elbow grease and some hints to help you along the way, you could reach your goal before you know it.
Let’s face it: Your credit score plays a massive role in virtually every aspect of your life. If you have poor credit, you are probably aware that you may encounter obstacles when attempting to finance any major expense. Although you can not erase your credit mishaps, you can possibly fund your business in creative ways that actually help rebuild your credit.
So how to start a business with bad credit? Here are a few ideas to put you on the path to success.
- One important factor to consider is the type of business. If you are setting up a business with a high rate of success in the past, or if you are purchasing an existing business, your chances of being able to obtain financing will likely be much higher than if you have chosen to pursue a riskier enterprise.
- Location of your future business may impact the amounts and types of available funding. If the area for your business is easily accessible and financially stable, your chances for receiving financial assistance are much greater.
- Are bank loans and/or credit cards the best financial solution? Fact is that bank loans and credit cards typically provide only 25 percent of initial funding for entrepreneurs. Thus, the remaining 75 percent of your funding may be secured from sources that emphasize your credit history less. While some financial institutions offer business financing for individuals with less than perfect credit, saving this type of financing as a last resort may be wise. The interest rates and fees associated with this type of loan are typically much higher, and when you are in the beginning stages of building a business, you should avoid excessive costs if possible.
- Consider funding from friends, relatives, and business associates. Studies show that approximately 50 percent of entrepreneurs receive financial assistance from friends, relatives, or colleagues at some point. If you decide to use this option, consider using a loan management company so that your payments are recorded with the credit bureaus in a timely fashion. This not only improves your credit rating, but also opens up the door to additional financing once you’re ready.
- Search the Internet. A number of reputable micro-lenders specialize in lending money to entrepreneurs. Although these loans are typically only $5,000 to $25,000, when combined with other financing options, they really add up. Since these micro-lenders typically report to the credit bureaus, your credit will likely improve as well. Beware of high-interest rates with this type of loan, however.
Investigate grant programs and gifts as well. A benefit of obtaining funding from these sources is that the money does not need to be repaid. So, can you start a business with bad credit? While this cannot be guaranteed due to the varying circumstances in each situation, with a little bit of creativity and some determination, anything is possible.
About the author:
Kristen Gramigna is Chief Marketing Officer for BluePay (http://www.bluepay.com/), a credit card processing firm, and also serves on its Board of Directors. She has more than 15 years experience in the bankcard industry in direct sales, sales management and marketing.