Quick Answer: Having a low credit score does not mean you won’t be able to start a business. There are alternative strategies and business plans that can pave the way to your business success and possibly help to fix your credit score.
Starting your first business is an exciting and nerve-racking endeavor. For many, a low credit score can squash the initial excitement or blossoming of any ideas. A low credit score can feel like a major obstacle, but it doesn’t have to mean the end of your journey to becoming an entrepreneur. Many practical strategies and insights can be employed to turn this minor obstacle into an opportunity many would jump at.
In this article, we will cover the various loopholes and important factors to keep in mind when considering opening a business with a low credit score.
Understanding Your Credit Score
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Before we even start to cover the various strategies you can use to launch your business on a low credit score, we will take a look at what a credit score actually is, as well as how it can affect your business plan.
A credit score is simply a number that determines your creditworthiness. This is measured using numbers ranging from 300 to 850. The number is determined using a variety of factors, including your historical outgoings, debts, the amount of time you’ve held credit for, and the types of credits you are making use of. Keep in mind when looking at your credit score that recent credit applications can contribute to your credit score.
A worrisome credit score is anything below 650. A number such as this can be a result of missed payments, credit cards that have been maxed out or simply other financial issues that you may have had in the past. A higher credit score may provide you with access to more funding options, but there is no difference in the potential success you will have as someone with a low credit score wanting to open a business.
How To Start A Business With a Low Credit Score
There are numerous business plans you can put in place that will bypass a low credit score. In the next few paragraphs, we will cover how you can go about starting your business despite having a low credit score.
How To Build A Solid Business Plan
Every business is built on a foundation of strategies and a solid business plan. When your main concern is your credit score, an in-depth business plan can be your saving grace. A business plan not only shows your knowledge of the industry you plan to enter, but it can also prove to possible investors that you understand the competition and other potential obstacles that may arise.
An attractive business plan will potentially convince further investors that your company is worth investing in. The way that you present your vision could be what seals the deal at the end of the day.
Bootstrapping and Personal Savings
In business, the only person you can rely on to get the job done as you would like it is you. The same goes for resources. When you have a low credit score, you have to rely on yourself ever so slightly more. The term bootstrapping refers to the use of personal resources to launch a business. The risk is far greater when going this route, but your options are fairly limited with a credit score below 650.
You can sell assets, minimize your personal expenses, and use your savings account to self-fund your business venture. The risk is far greater, but the reward will be just as great when you succeed. By self-funding, you will also bypass external control and maintain full authority over the way that your business is run.
What Alternative Finance Options Are There For Low Credit Scorers?
For many, this is a commonly known fact, but when you have a low credit score, it can be difficult to take out a loan from the bank. However, a traditional loan is not the only way to receive capital for your business.
Microloans are a definite option, as is peer-to-peer lending. There are multiple trusted platforms where new business owners can seek a loan, and the lender may be more relaxed about your credit score. But always read the small print, as you don’t want to pay an arm and a leg when you eventually have to fork out the money to pay it back.
Will a Business Partner Be Interested If I Have a Low Credit Score?
The best way to counteract a low credit score in business is by partnering with someone who has a better score. Finding a co-signer or business partner will benefit you and your business both financially and possibly in terms of the amount of success you will find.
Co-signers agree to take responsibility should you be unable to pay back your loan. With a business partner, you share the responsibility, and you will also have another person to bounce ideas off of, graft with, and gather information from. A trustworthy business partner who has your and your enterprise’s interests at heart could impact the success of your business.
Can I Build Up Business Credit If I Have a Low Credit Score?
Your credit score will affect the beginning of your business, but it will not affect the business credit you will accumulate should you find success. Similarly to your personal credit score, business credit scores affect future investments and growth should you neglect them.
Opening a business credit card and making sure you avoid making the same mistakes you made with your one will guarantee you a good business credit score. Over time, this business credit score will have a good effect on your score.
How Can the Gig Economy Help My Business?
When your business is in its infantry, there’s no harm in doing a bit of freelance work here and there. Freelancing can get your name out there and generate a network of trusting clients who would be more than happy to support your business should they come to like your work and your work ethic.
There are sites such as Upwork and People Per Hour that provide both freelancers and those looking for help with projects the opportunity to pitch work and get help with their own businesses. This is also a great way to learn from other business owners while earning some money for your own business.
A low credit score does not have to mean your entrepreneurial dream will never happen. There are multiple strategies you, as a business owner, can employ to find success in the industry and eventually generate a good income with an attractive business credit score. We committed to producing 100% human-expert written content for our site. Let us help you work out your best options for your future business.