Is Bad Credit Holding You Back from Starting a Business?
Posted by Shannon Suetos on October 12, 2010 in Business Start Up Advice [ 0 Comments ]
However, one of the many obstacles facing startups is lack of capital and relying on personal credit to fund a business is extremely difficult when you are faced with a bad credit problem.
Not too long ago FICO released information showing that over 25 percent of consumers now have a credit score of 599 or below. That’s over 43 million people that are considered subprime!
While there are alternatives to dealing with traditional lenders like social lending and microloans, these funding options still require a favorable credit rating.
So what can you do if poor credit is holding you back from starting a business?
Here are several options that you may find helpful:
- Structure formal loans with people you know – some of the new web based tools available by companies like Lending Karma and Lend Friend make it much easier to request a loan from friends and family. With a click of a mouse you can formalize a loan agreement, calculate payments, track and record payments, and have automatic payment reminders sent.
- Take advantage of vendor lines of credit – many suppliers are willing to extend credit terms to startups and small businesses. This allows you to conserve cash flow and obtain products and services you may need to grow your business without having to rely on personal credit to qualify.
- Apply for a government grant if eligible – Find out if you are eligible to apply for a grant by visiting Grants.gov. You would be surprised at all the various grant opportunities that are available.
- Use a temporary transfer of ownership – If you have a business partner who has a favorable credit rating then you may want to consider a transfer of ownership prior to applying for a line of credit. Banks will require that all owners with one third or greater ownership interest be included on the application. If you don’t want your personal credit to hinder your chances of getting business credit then this can be a viable option.
- Use purchase order financing to fulfill a customer’s order – If you have a customer ready and willing to purchase from you but you lack the funds and credit to fulfill the order then this can be a great option. Since purchase order financing depends more on the credit standing of your customer than you or your business you can get the cash you need from a purchase order financing company to obtain the materials necessary to fulfill the order.
While bad credit is a temporary setback it should never be the reason holding you back from pursuing your business venture.
Marco is founder of the Business Credit Insiders Circle, a step-by-step business credit building system. You may contact Marco directly at: firstname.lastname@example.org Follow Marco on Twitter @MarcoCarbajo and read more of his insights on business credit for small business.
Image Credit: nursinglink.monster.com/