Tweet

Starting a Business with Bad Personal Credit

Guest post by: K. MacKillop

Article Overview: Bad personal credit is a common stumbling block for entrepreneurs. Working for your self is the best opportunity for building wealth. While bad personal credit can make the startup process slightly more challenging, it is not a total barrier to business ownership and business success.

Starting a Business with Bad Personal Credit

Bad personal credit is a common stumbling block for first-time entrepreneurs. Often, the motivation for going into business is to make more money, indicating that they are not making enough money working for others, thus, bad credit. Working for yourself is the best opportunity for building wealth, and the sooner you get started, the better. Bad credit among entrepreneurs is more common than you think and can make the startup process slightly more difficult, but is not a total barrier in itself.

If your credit is pretty good but with some negative entries, it may be worth the effort to dispute inaccurate information and negotiate with creditors about removing negative entries. If you have several delinquent accounts or other derogatory information on your credit report, it takes months (at least) to bring your score up, even if you do everything right. Do not even consider the "credit repair" services -- the FTC has yet to find a single legitimate firm. The trickery they attempt to clean your credit report is bogus and at most will remove negative entries temporarily. If the information on your credit report is accurate, it is probably going to stay there for the seven years the law allows. You are better served spending your time finding creative ways to get your business off the ground than trying to "fix" the unfixable.

The primary complication of launching a startup with bad personal credit is funding the business. Banks rarely finance startups anyway, but bad credit will make it impossible to obtain a bank loan for your business. Same with the SBA guarantees -- because the SBA programs ultimately rely on you qualifying for a bank loan, excellent credit is required to get in the door. Even local economic development not-for-profits generally include credit score limits to qualify for government funded microloans. Generally, your credit score must be over 680 to even be considered, and anything below 620 will likely torpedo your chances. Not to worry, most businesses are launched without bank loans, and if you are driven to open the doors, you will find a way to finance your idea.

The other downside of starting up with bad credit is that some things will be more expensive and some necessities may be more difficult to secure. First, most businesses will need merchant services, the ability to take payments from credit and ATM cards. Your personal credit is a major factor in securing these services, and the regular banks are quite strict about who they approve. Fortunately, there are alternative merchant services firms that specialize in "high-risk" applicants. You will pay higher per transaction and percentage of sales rates, but you will at least have the ability to accept credit cards. If your business can be conducted over the internet, you can also obtain a Paypal account without a credit check...they accept both major credit cards and checking account drafts and their rates are usually better than the high-risk merchant services.

Some suppliers request a personal guarantee and credit check before providing terms. If you don't qualify, you may be required to pre-pay your business's orders or pay more for terms. In most cases, you will have multiple vendors to choose from and there may be some who do not require a credit check. Shop around for the best deals, but avoid having multiple vendors run a credit check -- believe it or not, inquiries lower your score even more.

Register your business with Dun & Bradstreet (under the EIN) as soon as possible to begin building business credit, and use the EIN on contracts and to apply for terms whenever possible. It takes time to build business credit, but eventually you want to be sure that the business liabilities are completely independent of your personal assets.

Don't let negative credit stop you from pursuing your dream of owning a business. While some things may be more difficult, there is no hard and fast rule that bad credit means you can't succeed in your own business. If anything, it will force you to be more conscientious about how you spend your startup capital and keep you focused on building your business with an eye on profitability.

Related Articles
  Personal vs. Business Finances
  Business Credit Cards versus Personal Credit Cards
  A True Business Credit Card
  To Franchisees: Be Wary of Using Company Credit Cards
  Should I use personal credit to fund my business?
  Build Corporate Credit for Your Small Business
  To Successfully Obtain Business Capital Every Business Needs A Coach
  Small Business Credit : DUN Numbers : Dun & Bradstreet
  Vendor Credit Lines Are Essential To Any Business Seeking Financing
  Why A Good Credit Score Is Important To Your Business
  Need a Bank Line of Credit Use a Bank Guarantee BG Program
  What the Heck are Business Credit Bureaus?
  Get Guaranteed Bad Credit Car Loans & Auto Financing for Used and New Cars
  Establishing Business Credit with a Secured Business Credit Card
  Small Business Loans With Bad Credit
  Maximise the use of your basic rate tax band (UK limited companies)
  Credit cards: how do we use them?
  How to Get a Online New Car Loan with Bad Credit
  Bad Credit Car Loans - Getting a Auto Loan Financing With Bad Credit
  Keep your credit record squeaky clean

Article Tags: bad credit, business credit, business ownership, Business startup, business startup, personal credit, startup funding, stepbystep startup



Related Forum Posts
Re: Twitter vs Facebook - I know this is a naive question but i'm really not sure: What do you tweet ? Business? promote your business? Personal? Are there things you can't do? ALSO :Is there a rule book? Is there a success formula using twitter?
Happy Worker as of Dec 31 2007 - Here's mine... I'm now off to make an offering to the business planning gods for their help in getting to these goals & beyond. To the combined success of Prophets 2 Profits! ----------------------------------------- 1) Corporate a) Retail - Sales reps covering all major markets (1M or more) - Retail product launch plan - 1 more retail release (TBD) b) The Toy Agency - Systems for: o Creative process o Pricing o Manufacturing o Logistics - Marketing agency strategy in place - 1 new customer every 2nd month (5 new customers); 1 of which will be rev of >= 500K/year c) Business - Creative talent pool management strategy & process - Outsourced and/or weekly bookkeeping - Monthly budgeting & forecasting - Better banking organization (Line of Credit, CCs, automate billing for appropriate vendors) - Team total of 5 - Larger office d) Web site - Daily updates - Start of separation of Blog/TTA/Retail 2) Personal - Most weekends “off”! - Entirely separate personal finances; basic personal financing plan - Family….?
Re: New Year - New Resolutions? - Business goal: To not procrastinate and to take action on my plans. Personal goal: To be more physically active as sitting on the computer all day isn't good for you.
Business Innovation - Hi Simon If you can finish off the Business Plan and think about your strategic direction or how you are going to use your product to convince people it's a great idea, it will set the foundation for your programming project. You see, when you are looking for funding you will need a Business Plan and Strategic Plan that will convince companies to invest into your new idea. Has anyone achieved this idea before using another industry besides health and fitness that you know of? You should also design some mockups as a "preview" for your programming project. This will also help reduce your programming costs as everyone will know exactly what you want if you have detailed mockups already completed including any functionality you require. Starting mockups for websites and software applications on paper is the best way if you're not a guru in graphic editing software.
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

TOP Level Selling

SEO and the Entrepreneur

Ten Reasons to take Notes during Sales Meetings

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.