Bad credit doesn’t have to hinder the success of your business
Are you worried that due to bad credit, you won’t be able to become a successful business leader?
Originally reported by our sister brand, Business Review Canada, If you’re currently suffering from a bad credit score, then you may be worried that you’ll never be able to start and run your own company.
RELATED TOPIC: A guide to establishing and maintaining good business credit
Even though you may face some challenges along the way (i.e. getting the proper funding to initially start your business), bad credit doesn’t have to hinder your dreams of starting your own company.
So just what can you do if you need funding for your business, but don't have good credit?
Look beyond banks
As the article, "Just Exactly What Is Bad Credit?" points out your credit score is used to assess how much of a risk you are to loan money to.
If you're showing unpaid debts or skipped payments, that won't inspire confidence in a big lender such as a bank.
But it’s interesting (and vital) to know that banks are not your only choice when it comes to borrowing large amounts of money.
Online lenders have risen in popularity in recent years, and can be a viable alternative if you don't have the best credit score. Online lenders are more willing to take risks.
Do be aware that online lenders often charge higher interest rates than banks, and are not as strictly regulated. That's why you should always read the fine print in detail, and look to reviews, ratings and personal recommendations when making a choice.
Micro lending is also an option for those with poor credit.
Micro lenders such as ACCION, Grameen Bank and Kiva provide small loans (typically around $1,000- $5,000, though amounts may vary). Micro lenders look beyond your credit score, taking into account your passion, experience, and the viability of your idea.
Consider crowd funding or peer to peer lending
Crows funding is also an option that you may want to consider pursuing.
Crowd funding sites allow you to raise money by letting people know how brilliant your idea is and getting them excited about it. The more effectively you can market your idea, and your crowd funding page, the more likely you are to succeed.
Peer-to-peer lending removes the financial institution; allowing investors to lend directly to businesses.
Whether you are a candidate for peer to peer lending will depend on just how bad your credit score is, as it may still be taken into account. However, with typically lower rates and more flexibility than blanks, peer to peer lending is worth investigating.
Lending isn't the only way to finance a business.
You can also look into the possibility of grants. Be wary of websites that promise to find you Government funding - getting a grant is by no means an easy route, so be wary of any company that makes it sound simple.
Be prepared to do a lot of research into what is available both for your type of business and in your geographical area.
Grants are strictly administered, but depending on where you live you might find grants available for healthcare companies, technology (especially green technology), tourism businesses, or retail in poor areas.
Clean up your credit score
If you want to help your business financially in the future, do all you can now to clean up your credit score:
- Pay off those credit card balances if you can;
- Be mindful of the ratio of what you put on your credit card compared to what you pay off monthly;
- Try to consolidate credit card usage into one or two go-to cards rather than using lots of cards;
- Pay bills and balances on time;
- Make sure you see a copy of your credit report and query any charge or debts you feel are unfair.
Getting capital for your business can be challenging when you have credit problems, but bad credit doesn't have to spell disaster.
When it comes to getting money, you have to be creative and flexible. However, make sure to always read the fine print of a contract and to never take more money that what you will be able to later pay back.
About the Author: Tristan Anwyn is an author who writes on a range of topics including social media, SEO that works, and how to find funding for your business.