Whether it is your first business venture or you’re expanding your business appetite, a bad credit
experience can lead to frustration.
Except in rare instances, a business loan will be required to start up a company. Should you have credit issues, you can be severely hampered in your efforts to locate funding for your business.
If you find yourself paddling in the bad credit boat, there are some options to consider to keeping afloat. Keep in mind, you may still sink in trying to get a loan, but at least you’re trying.
Don't sink in credit card debt
Despite what you may perceive as bad credit woes, approach a bank, credit union or other financial source to see the likelihood of obtaining funding. Even if your credit is less than stellar, you might be able to locate someone who is willing to provide you with a source of credit.
One of the possible options is acquiring a bad credit personal loan, given the fact that banks, credit unions and other financial institutions accrue money when they lend you funds.
Keep in mind, however, that lending institutions are searching for good scores when it comes to the borrowers’ side. For those individuals starting their first-ever business or growing their company footprint, bad credit means receiving higher interest rates in return from the lender.
The key in getting the loan is being able beforehand to inform the lender the means and time element involved in when you will pay back the loan. In the event you fail to repay the loan as the terms document, lenders could satisfy a secured bad credit personal loan when it comes to your business.
Those applying for a bad credit personal loan are advised to:
- Separate business credit from negative personal credit by introducing a corporation of LLC and seeking an employee identification number. This can be done by using the EIN to form a business credit profile entirely separate from the bad personal credit.
- Set aside the time to discuss financial needs and necessities with a banker. Given that each banker has different rules and regulations, look for the one to best meet the needs of the
In the event you’re not getting anywhere with a bank loan, there is always the option of working out a loan via family or friends.
The tricky part of turning to a family member or friend for a business loan is that any defaults on paying back the loan could lead to tension and potentially impact a relationship.
If you are still having trouble securing the money for that new business venture, keep in mind that you can establish business credit not tied to your personal credit in order to improve your financial prospects. In the meantime, establish the business name, address, phone etc. to get things rolling.
In order to do this, it is important to differentiate personal costs from the business costs so you can make the business be its own credit user.
You should also establish your company’s credit score. Doing this involves applying for a tax ID number for the business, which thereby gives you a separate legal entity for the establishment. Given that it is your Social Security Number that draws attention to the negative credit rating and the challenges in obtaining a loan; this may make it easier to access a loan for the business.
Accessing a small business loan when your credit is shaky at best is not easy, but it doesn’t have to be out of the question.