Your credit score always has a significant role when it comes to financing. It has a considerable impact on approval, rates, and terms of loans and mortgages. Thus, if you have a high credit score, you will find it easy to get credit offers from many funding platforms. Plus, you will likely have lower interest rates and more favorable loan terms, as compared to those whose credit scores are low to non-existent.
Nevertheless, a low score isn’t something you should be shy about. It should not be something that would hinder you from starting up a business. The trick is to be creative and fund your business in other ways, which will also help you improve your credit score just in case you want to expand and move to the next level for your business.
In this article, we will be sharing a few ideas to help young entrepreneurs who find difficulty financing their businesses for being bad credit risks.
Credit cards and bank loans
Studies show that bank financing, including credit cards, cover only 25 percent of the total funding needed for start-ups. This implies that 75 percent of the money you may need as an entrepreneur may come from other sources that rely less on credit standing. Nevertheless, credit cards and bank loans still provide a good 25% boost in your capital.
A bank may offer an individual with poor credit a bad credit loan to help with his business. However, the said person might be granted such a loan on a higher rate of interest to compensate for the risk posed by the said borrower.
Use own unpaid labor and resources
Young start-ups can fund their business by utilizing their efforts and resources. By investing your resources, your business can progress on your timeline and at your own pace. You have more leeway to decision making. Also, you will better understand the process of your business, allowing you to make more educated choices and decisions for your business.
Seek loans from family and friends
Family and friends are a good source of financing. They often chip in money to help and support a promising business. Parents could give you a loan or friends can buy a stake in the business ownership. The case with family and friends is that they likely want to see you succeed rather than earn income from you. Hence, aside from financial help, they may be able to help make your business dream a reality by lending you their resources and connections, too.
Explore microlenders and web-based lenders
In this day and age, there are several nonbank lenders readily available on the internet that offer microloans to small business owners. Some of these alternatives provide excellent sources of funding for poor credit risks.
Similar to loans that banks offer to persons with poor credit, the interest rates on these loans tend to be high. Nonetheless, there are also subsidized microlenders in your state that may offer more favorable terms; the only catch is that they may be challenging to find.
A small business can reach higher potentials by becoming part of a larger business venture. Big companies often offer to buy smaller enterprises that offer creative and new innovative products that complement their own business.
When business proposals are appealing and promising, a lot of people may also support your endeavor. Perhaps, you also have a pool of supporters. This could help you grow your finances and funding by soliciting support from them. There are platforms now for crowdfunding, such as GoFundMe, Fundable, Kickstarter or any other popular crowdfunding platform
Little efforts from many people may go a long way. It will soon create a vast pool of resources for you to fund your business.
Gifts and Grants
Aside from the above mentioned, consider also accepting traditional donations and grants. You may use this alternative to fund your business. What’s right about this is that there is no reciprocal obligation involved concerning the giving party. Except only if there are conditions attached to such a gift or grant. However, gift taxes may apply for this kind.
Having a good credit standing is essential. But sometimes, there are reasons why we have bad credit standing or perhaps non-existent credit positions. These reasons may be out of our hands. It could be that we are still young in the world of entrepreneurship that we have not made our credit marks yet. Or perhaps, we have had circumstances that did not improve our credit stand.
Nevertheless, this should not hinder us from putting into reality our dream of starting up our own business. A lot of alternatives are available if you look further enough. In starting businesses, we do not need to rely heavily on sources that depend on our credit standing. As mentioned above, we can resort to other alternatives.