Starting a business is still possible if you have poor credit, but you might find your options are a bit more restricted if you need funding to get things off the ground. We go over what to consider if you’re hoping to launch a new venture, and alternative funding options available for low-credit entrepreneurs.
You might find it more difficult to get a business loan if you have bad or low credit, but there are still a huge variety of funding options available. Some lenders even offer bad credit business loans specifically for company owners whose credit score is affecting their ability to apply for financing.
If the prospect of taking on a loan seems too overwhelming, then alternatives such as a crowdfunding campaign or a business grant could be more suitable. Grants can be awarded to businesses to help them launch, grow, or for a specific project depending on your needs, and often don’t need to be repaid.
A low credit rating might not necessarily be an issue unless you’re actually looking for credit – whether that’s from a lender, investor, or even a supplier (in which case they might simply request payment up front). If you are looking for finance, then improving your credit rating will certainly help.
Review your credit score
The first step, scary as it might seem, is finding out exactly where you and your business stand in terms of your credit rating. The easiest way to do this is using a credit report service such as Experian, or one of the many others out there.
Your credit score is generated based on your financial history, and references things like payment reliability and dependency on credit. The report will go into detail about which areas need work to help improve your credit score.
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Choose the right business structure
Your legal structure affects the way you set up and operate your business, so it has a big impact. A key consideration here is that sole traders and partners in a partnership aren’t ‘separated’ from their business, so there’s no distinction between your personal finances and your business’s.
A limited company is a legal entity in its own right, so your personal funds are separate to those of the business.
Besides your credit card, make sure that you manage any contracts you have with service providers and vendors. This means making sure you set reminders, and communicate with them when you need to.
It’s better to avoid legal proceedings where possible, especially if all it takes is a phone call. Having them on your record could damage your ability to get business finance in the future.
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About The Author
I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.