Every day we see new businesses opening their doors, with everyone from the work at home mum selling her beautiful homemade gifts, to the Silicon Valley startups trying to bring brand new products to the market. In most cases, the bigger the business venture, the more capital is needed to set it up. While setting up a business is often easier than it sounds, if you have a poor credit history then you might find yourself coming across a few challenges. If you’re interested in starting a business, but you have a poor credit history, then follow our top tips below:
1. Create a Business Plan
The first thing any new startup needs to do is to formulate a business plan. Your plan should include information about the type of business you want to open, the type of products or services you will provide, how you will manage the company, and how you will market it to new customers. Once this is complete, you will need to start looking into financing your idea.
2. Managing Unrealistic Credit Requirements
One of the most common difficulties startups face when searching for funding for their business is the strict requirements that banks and other lenders put on their loans. So, what can you do if your business isn’t able to apply for a loan from a well-known bank? There are two answers to this question. The first option is to improve your credit rating and try again, and the second option is to find a lender who doesn’t place as much importance on a good credit score.
3. Poor Personal Credit Doesn’t Always Put Lenders Off
Lenders are often more interested in how well your business is likely to do in the future than how well you’ve performed in the past. While most lenders will look into your personal credit history, they will also look at your business credit score.
A business credit score is a number that tells lenders whether a business is a good applicant to receive a loan. Your business credit score will be based on factors including previous loan arrangements, credit cards, overdrafts, mortgages, and any other debts the company may have had in the past. It will also take into account things like your reputation within the industry and any recent customer reviews and sales reports.
It’s important to remember that even if your personal credit history isn’t ideal, there is still an opportunity to demonstrate your ability to meet repayments.
4. Build Your Credit Rating Back Up
If you’ve been turned down for a business loan because of your poor credit history, then you should start looking for ways to build your credit rating back up. While this may take a little bit of time and effort, it can be done.
If you want to overcome bad credit, then you’ll need to address all of the areas that are currently working against you. Try and clear your credit cards and pay off any outstanding loans if you can. Obtaining your credit score will give you an indication of all the things that are negatively impacting your business. When you know what the problems are, you can start sorting them out.
No matter what type of business you want to open, it pays to be prepared. Businesses need to ensure they’ve created a solid business plan before approaching a lender. They will also need to show lenders that they’ve considered their credit rating and tried to overcome any issues with it. Lenders are much more likely to lend to business owners who have looked at their finances and tried to overcome any problems.