Having bad credit doesn’t mean that you can’t start your own business. It only means that you have to get a bit creative in locating your funding. If today’s economy has left you unemployed or you simply want to be your own boss, don’t let bad credit slow you down. There are ways you can secure start-up funding for a business even if you have less than perfect credit.
If you dream of opening a pet boutique, for instance, start off baking treats in your kitchen and selling them at local fairs and community gatherings. Business cards can be made on the internet and your supplies can be bought rather cheaply. Once you’ve gotten your home-based business off of the ground and have made a profit, you can then consider expanding.
If you are trustworthy and have friends and family that have money to spare, consider asking for a loan. Don’t borrow more than you can reasonably afford to pay back, whether or not your business succeeds. Draw up repayment contracts to show your family that you’re serious about your intent to pay back the loans.
Utilize Giving Sites
There are sources on the Internet like Prosper.com and Go Big Network that give loans to small businesses. Most of these loans come from private individuals and small companies looking to help other entrepreneurs get off of the ground. While some lenders will base a loan on your credit score, many don’t, particularly if your start-up plan is extraordinary.
If you have a family member with outstanding credit, ask them to rent supplies or take loans in their name. You would hold the responsibility for paying back the debt, of course. If your credit is too poor to even be able to use a co-signer, ask friends or family if they will take a loan in their name only. You’ll be surprised at the number of people you know that are willing to help you if you just ask.
Save Your Money
Once you start turning a profit, it’s tempting to pour all of your money back into your business. Try to avoid this mistake. Create a budget and plan on putting at least 50% of your profits into a savings account. Utilize this money for your business in the future, not in the present. By saving as much money as you can, you’ll reduce your need to take out a loan.
Apply for Grants
Head to Grants.gov and see what government grants your small business qualifies for. You aren’t guaranteed a grant but you’ll never receive one if you don’t at least apply.
Purchase Order Financing
If you have a solid customer and an order to fill, consider purchase order financing as an alternative option. Rather than depleting your cash reserves or attempting to get a business loan based on your credit, your supplier is paid by a POF company and your customer receives their shipment.
Having bad credit is a surmountable obstacle; don’t let it hold you back from starting the business of your dreams. Once you have begun to turn a profit and your business has proven itself a success, you’ll find it easier to secure funding from a variety of sources. In the mean time, start working on reducing your personal debt and improving your credit score.
Author Steve Ashland is a consultant for medium to large corporations. He suggests you look into letter of credit lending before dipping into your cash flow to purchase materials for larger orders.