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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.

Where should I start?

There are lots of different reasons for wanting to start a business, so keeping these on your radar can help you stay motivated and make the decisions which best suit your needs. Most startups will need to:

  • Do some market research
  • Write a business plan (even if it’s just for you!)
  • Choose a business structure
  • Decide what funding support you might need
  • Keep financial records
  • Submit tax returns

It all sounds a bit daunting, but it’s manageable no matter what stage you’re at financially.

Read our guide to starting a business from scratch to learn more.

What business funding can I get with bad credit?

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.

Our article about different types of business funding goes into more detail.

How do I improve my business credit rating?

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.

This means that the business structure you use to run your business can influence what sort of funding is available to you, and the relationship between your own credit score and your business credit rating.

Keep up to date with payments

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.

 
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Beth-Anne Karellen

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.

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