The BizFilings blog covering business tips and trends.
Can I Start a Business With Bad Credit?
Published on Jul 19, 2013
Learn how any entrepreneur can start a business with bad credit.
It’s no secret that bad credit can potentially make or break any individual let alone an entrepreneur.
When it comes to entrepreneurs, Asheesh Advani puts it very well by comparing bad credit to a bad SAT score as it can limit significant financing opportunities. And to an extent, that statement does ring true, especially for first-time entrepreneurs who need to offer their personal credit for any business venture.
However, while bad credit will certainly require more entrepreneurs to pursue more creative ways to acquire financing before taking the steps to incorporate, it certainly doesn’t limit anyone from starting a business with minimal resources, let alone a thriving business.
Outside of the usual financing resources such as banks, below are some avenues any entrepreneur can explore and pursue when attempting a new company formation with bad credit:
Find a friend – This piece of advice is fairly self-explanatory, but entrepreneurs who are committed to their vision can absolutely turn to their network and source the funds to start-up. Good connections, friends and even relatives are invested in your personal success and likely won’t make their decision to loan money based on your credit score.
Gifts and grants – Rather than go after loans (which will ultimately result in high interest rates) search for gifts and grants. As the old saying goes, nothing comes for free, so while grants will arrive with no strings attached, entrepreneurs will need to search long and hard for these opportunities. That said, turn to your network for gifts, such as free services, discounted office space or even supplies donations.
Micro-lenders – Micro-lenders exist to loan capital to new and growing business after they have been turned down by traditional lenders, such as banks. Examples of micro-lenders include ACCION and Business Center for New Americans (BCNA) who are backed by the SBA and understand the capital challenges facing small business owners. Additionally, micro-lenders are equipped to offer the counsel to ensure a business’ long-term success.
Web lenders – Internet based lenders, such as Kiva, are solid alternative sources for business financing. As an added financial bonus, some web lenders will also report your payments to credit bureaus that can help improve credit score if you’re able to make timely payments.
If you choose to go it alone, consider testing out your business idea or pursuing a business with as minimal start-up costs as possible. For example, is starting an online business a possibility? If so, that would eliminate the capital costs associated with a traditional storefront.
Entrepreneurs – any additional ideas or anecdotes around how you started your business? As always, we’d love to hear them!