Starting a business is something that many people love the idea of doing. However, starting a business isn’t easy. There is a lot of work and research to be done. As a result, it can be quite difficult to get your idea off the ground. This is especially true if you have bad credit.
Bad credit can make it difficult to borrow money in many cases. Since most businesses require a lot of capital, this can be a serious roadblock in your mission to start a business. While you might think it’s impossible, that is thankfully not the case.
Without any further ado, let’s look at a few tips to start a business with bad credit.
1. Know the Loans You Qualify For
First of all, it is a good idea to know the types of loans you qualify for. Bad credit will certainly hurt your ability to get some loans, but not all. For example, consider title loans. These are loans in which you will put up an asset for collateral. If you miss payments or default on the loan, the lender will be able to keep the asset. This is normally a car but can be a variety of different items.
The loans are great for those with bad credit, as many title lenders won’t even look at your credit. They have significantly less risk involved thanks to the collateral you put up, so lenders aren’t overly concerned with a bad credit score or history. If you are looking for more details check 5 Star Loans, as it is a great resource that can help you out.
In addition to knowing the loans you might be able to get, you should also familiarize yourself with the lenders willing to work with you. Some lenders will only work with those who have great credit, but others are a little more flexible. Sure, their rates might be a little bit higher, but at least you can get the money you need.
2. Find a Co-signer
Next, a great way to ensure you can still get the money you need to start a business is to find a co-signer or guarantor. This is essentially someone who agrees to pay your loans if you are unable to for one reason or another.
If you can’t qualify for loans on your own due to credit, finding a friend or family member with better credit, and having them co-sign loans can help. Of course, this person will need to be eligible, which usually means having good credit, and a good past history of borrowing. Make sure they are aware of the commitment and all that is required of them.
Of course, be sure not to take advantage of the kindness of your co-signer. The last thing you want is for them to be responsible for your financial or business mistakes. Remember, their reputation and finances are on the line as well, so make sure to be careful.
3. Get Creative With Financing Options
While borrowing money in a traditional manner is common, it isn’t the only way to get the money you need to start a business. There are several other options out there, and getting creative with your financing options is a good idea. By thinking outside of the box, you could end up finding a better solution than a traditional term loan anyways.
Other creative options for getting the financing your company needs include looking for interested angel investors, searching for business incubators in your area, running a crowdfunding campaign, or even using online microloans. These are all modern solutions that will work for several small businesses in various sectors.
Best of all, most of these methods won’t need to take your credit into account, so you won’t be penalized for having a less-than-perfect credit score or history.
4. Be Proactive and Show Improvement
While you can’t change your credit history, you can change what you do in response to it. If you notice your credit is bad, you need to quickly take the steps you need to improve it. The more proactive you are, the better it will look to everyone from your bank, to potential lenders, to the credit bureaus. Be sure to pay all of your bills on time, spend responsibly, and keep your credit utilization fairly low. Over time, your credit will begin to improve, sometimes even in a matter of a few short months.
If you can show effort and improvement when it comes to your credit, it can go a very long way. In fact, some lenders may care more about how your business and its finances are doing than your own credit history. If you show improvement, and your business isn’t a reflection of your personal finances, you could still easily and affordably get the loans you need.
5. Keep Startup Expenses Low
Having a ton of expenses as a startup means that you will likely need to take out a loan that can be expensive for bad-credit individuals. If you manage to keep your startup expenses low, you may minimize the potential damage that your bad credit score can do. There are many things you can do to keep startup costs low, from working from home to putting off expensive purchases or even using free tools or software when possible.
Also, keeping startup costs low can give you time to build up your credit, so when you do need to borrow money in the future, it will be much easier and more affordable. It can be very tempting to spend a lot upfront and have the perfect functional business from the start, building it up slow and steady is often a better financial decision. If you do your research ahead of time, you should find a ton of different ways and methods to keep your costs low when you are just starting out in business.
In conclusion, starting a business with bad credit is possible if you follow the tips outlined in this article. While it might not always be easy, with a little bit of hard work and creativity, it can certainly be done.