Published By Janet Gershen-Siegel at October 21, 2017
Do you know how you can get startup business loans even with bad credit? As a brand-new company, by definition, you have no or little company credit history, so it can be tough. When you ask: What is the credit score of a new business? The answer is– it’s usually not so hot. But don’t worry!
Here are some ideas which will work.
Since a startup enterprise and its credit will undoubtedly be conflated with the personal credit of its owner(s), take steps to split up the two. One of the most significant steps you can take is to request an IRS EIN (employer identification number). By announcing to the IRS that your startup business is the real deal, and not just a pipe dream or a hobby, then that helps to signal to creditors that its commercial credit is not the same as your personal credit, and should not be treated like that.
At some point, you will wish to stop doing so, but initially, you have got to get your startup off the ground, and that means you will need to have developmental capital. This is capital to do anything from paying a rental deposit for an office space to purchasing a set of prototypes for a product you want to make. If you have decent consumer credit, then you can tap into it to get your startup, well, started.
Once you have established a record and a favorable payment track record, then you can deal with getting your business line of credit. Having a decent personal credit score will go a long way to showing financial institutions that you are respected and will pay your debts promptly.
Guarantee with personal assets and collateral
What happens if your personal credit is less than stellar? Collateral is essentially when you use something (or various things) of value in order to ensure your payments. However, as you might expect, if you default, you will give up your collateral. Still, it is a decent method of how to finance a company with poor credit As always, pay your invoices punctually and fully, and don’t borrow beyond what you can pay back conveniently. After all, now your second car (or something like that) is on the line if you’re late with payments.
Trade credit is when you work directly with a community vendor you use day in and day out and ask them to float you some credit for payments at a (not too far into the foreseeable future) later date. For a catering firm, this could be a green grocer. For a dance studio, it could be the firm that cleans the carpets or maybe a salon which does the students’ hair and make-up for recitals and shows.
No matter which type of vendor you get trade credit with, be savvy and, naturally, pay them on time (and early, if you can swing that). Not only does that strengthen and preserve that relationship, it also counts towards your credit score.
This may feel a bit like a no-brainer, but your use of presently existing credit will be just what any creditor (trade or financial institutions, etc.) will use to establish whether you can pay your expenses punctually and are, as a result, what is considered a good credit risk. All of a sudden squandering all of your personal credit at the tables in Las Vegas is not going to endear you to potential lenders. Startup organizations especially, regardless of how meticulous they are, are normally evaluated as the full credit package. That is, both personal and business credit scores are under consideration. If you look like a bad credit risk on the personal credit side, you’ll appear, to future lenders and creditors, to be a similarly poor credit risk on the business side of things.
Startups can prosper, although the probabilities are long. But if a startup has their own business line of credit, that can make it a bit easier to succeed.