Starting your own business can be a great method to pull yourself out of debt … but it only works if you can find the money to open shop. What’s a potential entrepreneur who has poor credit to do?
Don’t let bad credit be a barrier to starting a business. Use your ingenuity and intelligence to finance your way to success and improve your credit along the way.
If you had good credit, you could readily get a business loan with half an idea written on a napkin, but when your credit has tanked, you’ll need to have a solid business plan. The more you can establish about your plan for operations before you go out and seek funding, the more likely you’ll succeed in finding support.
Consider Your Funding Options
When it comes to funding, you have two primary options as an entrepreneur with bad credit: You can take out a bad credit loan or you can seek funding that doesn’t rely on your credit score.
Bad credit loans are inherently risky because they typically entail very high interest rates in order to offset the potential for default. Though one of these can help get you to a position where you may open a business and pay such rates, it could also drive you further into debt and even bankruptcy.
Instead of taking out a bad credit loan, a better option would be to obtain funding from online lenders who don’t have credit score requirements. Among the most popular of these are sites like Kabbage and OnDeck.
Both require that your business to have been operating for at least a year, however, and to be turning a profit. If you can get established, these sites can improve your financial status beyond what a bad credit loan would do.
The middle ground between a bad credit loan and sources like Kabbage and OnDeck is Fundbox. Unlike Kabbage and OnDeck, Fundbox doesn’t require a minimum survival time in business or annual revenue requirements. Unfortunately, this lender may push you to the high end of its APR scale (which runs as high as 76.5%) if you don’t have any preexisting revenue.
Numerous options similar to Kabbage and OnDeck that an aspiring business owner who has poor credit can get assistance from without leaning on a credit score. Keep these in mind as you labor to build your business. More options will open to you as you become firmly established.
The whole process of starting a successful business hinges on your ability to negotiate. For example, it’s generally unwise to go into business with friends because it’s hard to set clear boundaries between your work and personal relationships.
On the other hand, if the two or more of you have a shared goal, set everything down in legally binding terms, and understand how to negotiate the terms of this new relationship, you and your friends could possibly make excellent allies in an entrepreneurial venture.
Business partners aren’t the only people you’ll need to negotiate with along the way to launching a successful business. You should always negotiate your property lease, services, and inventory prices.
Going into business is a great way to hone your negotiation skills … which you can also apply to working with your creditors to decrease your debt. The key is to take your skills full circle.
Poor credit can make it hard to open a business, but it doesn’t have to stop you, if you do your research and grasp your options. Your professional growth and financial recovery are integrally linked, if you’re willing to trust your potential.