Funding a business with bad credit

If you have bad credit, many lenders are not going to be very willing to take a chance with lending your money, even if it is to get a business up and running. The reason for this is that people who have bad credit are more likely to default on their loans than people with good credit are, so it is a bigger risk than most lenders want to take. Even if you have bad credit you can still get financing for your business, you are just going to have to go about it in a different way.

Here are some tips that you can follow to help fund your business, even if you have bad credit.

Tip one:
You will need to separate your personal credit from your business credit. This is important because if your personal credit score is bad you do not want that number associated with your business credit. If the bad personal credit score is tied into your business, you will never be able to obtain financing for your business. To build up your business credit score you will need to obtain a Tax ID number, so you can use that for your business instead of your Social Security Number. To build up your credit history you will need to start small, it is going to be a timely process, but well worth it in the end. Once you have built up your credit history you can obtain larger loans and obtain financing easier, but you want to be careful that you do not over extend yourself.

Tip two:
When trying to get a loan for financing your business you can consider putting down something as collateral. With collateral the more the asset is worth the larger loan you might be able to qualify for. With collateral lenders are more likely to grant you a loan because they will have something worthwhile in case you default on your loan. When you have bad credit and have no collateral to put down lenders do not want to take that risk of lending money because if you default on the loan they are at a loss for the money, they have no means of making some of that money back. When putting down collateral, such as a title to a car or boat, the loan that you can receive is going to be for as much as the asset is worth. The reason for this is that if you default they can get back as much as they loaned by selling the asset.

Tip three:
Consider using non-traditional methods for funding your business. Non-traditional methods are going to give you more options for financing your business if you have bad credit. With non-traditional methods of financing you will not have to worry about borrowing money from a bank, so the financial requirements that are needed will be a little less strict. In some cases, such as with a second mortgage you will need to have a good credit score, but with most methods your credit score is not going to matter.

If you are going to try to finance your business while having bad credit, it is going to be a costly process. One of the reasons for this is that even if you are approved for a loan you are going to be faced with higher interest rates. You might also be forced to use asset based lending, which means putting your house or car up as collateral. If you have bad credit, it is a good idea to clear up your personal credit before you try to apply for financing, so that you have a better chance of obtaining decent business loans.