You have an awesome idea for a new product or service and have the vision to create a successful brand. However, in order to start your journey as a successful entrepreneur, you need to acquire much needed startup capital. This can be harder for some than others, mainly because it’s often difficult to persuade creditors why they should take a risk investing in their venture.
It has been established that a very small number of new businesses are granted loans from banks or other commercial lenders. Among other factors, poor personal credit history is a common reason behind a relatively low approval rate. Lenders and credit bureaus can perform more than 2,000 checks on a potential borrower and the businesses before making a loan determination.
However, bad credit doesn’t mean that entrepreneurs can’t attain any form of financial help. They might just have to work with a higher interest rate, as creditors are taking more risk lending to them.
On a more uplifting note, struggling to maintain a good credit score can help them maintain conscientious spending habits and better financial planning moving forward. It’s never too late to build good business credit with bad personal credit.
Here are four ways to build business credit with bad personal credit:
- Make Sure Your Business Appears Legitimate – Legally separate your business from yourself to protect your personal assets. By forming a limited liability company or corporation, you can disentangle and separate your personal from business debts. It is also recommended that you register for a business number, GST/HST,corporation income tax, payroll and import/export accounts in one convenient online location. Additionally, even if your business is online, you should establish a phone line and physical address for it, and have a professional business plan set and ready to go.
- Secured Business Credit Card – An additional form of credit is revolving credit via a business credit card. However, with bad credit you would certainly need to start with a secured business credit card which requires a security deposit of $500. This is one of the fastest way to build good business credit with bad personal credit, mainly because you are establishing a credit history for your business separately.
- Revenue based financing – There are additional financing programs such as revenue based financing where credit scores in the 550 range can even enable a business to secure financing. This type of financing is based more upon business bank deposits rather than credit scores. It’s crucial to bear in mind; the trick to developing a creditworthy company is in utilizing a correct mix of credit kinds such as short-term funding, revolving credit, installment loans, leasing, etc.
- Manage your personal finance – The right business structure won’t solve all of your problems, especially if you’re applying for larger loans. Business owners must stay on top of their personal credit scores even more than the average consumer to avoid higher interest and insurance rates. Most banks won’t deal with a business owner with a credit score below 640 and some won’t look at you if you’re under 680.Get in the habit of pulling your free personal credit report from one of the three credit reporting agencies every few months.
So there you have it, four ways to build good business credit with bad personal credit challenges. Remember, once you establish payment history, maintain a low debt to credit utilization on individual business accounts, and work on restoring your personal credit, you and your business can be in a much better position to acquire additional financing sooner than you think.