How Will My Credit Profile Affect My Business?

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I think if you started reading this and you are currently holding your breath, then you are going to be disappointed. I know the feeling. You are hoping that you are going to read that people with bad credit can get financing for their business. While there are places out there that will lend to people with bad credit, you already know that it’s more likely a payday-loan kind of place. Lenders typically look at the personal credit of the business owner (especially startups) and prefer to lend to people with “good credit.” So, if you are in this position, the options are numerous for you, and you should get as much money as you can now for your business. I really mean that. If you are not, then there is still hope, but it’s going to require a little patience and maneuvering.

How Will My Credit Profile Affect My Business?

What are the different credit profiles?

  1. “Good” Personal Credit Profile – This applies to people with a 700+ credit score (preferably across all 3 bureaus). It also requires that the owner has some form of income, whether it be from the business, a job, or another source. Having assets with equity in them is also very helpful, like a 401K or a house, etc.
  2. “Bad” Personal Credit Profile – This applies to people with a credit score below 680. Options start opening up above 680, but 700 seems to be more like the magic number. Even though 670 is considered fair credit, it gets harder to find decent lenders to fund you.
  3. Business Revenue – If you are trying to get funded based on your business revenue only, then the more revenue you have the better. Lenders become more interested if you have revenue of at least $10,000 monthly.

How do I get business funding if my credit is bad?

  1. If time is not on your side – I would recommend talking with your friends and family members first. If the business means a lot to you and you genuinely believe that this is what you should do with your life, then have an honest conversation with them. You can either ask them to loan you the money and you work out the repayment schedule, or you can ask them if they want to be partners. The main difference is that. if they loan you the money, then it is debt, and you are obligated to pay it back regardless of how the business does. However, if they become partners with you, then the money is considered equity and you are not obligated to pay them back, BUT they will share in the profits of the business.
  2. If you have time – If you have time, then I would recommend that you do two things:
  1. Work on building up your credit score – At the minimum, try to get it above 700. Pay down revolving debt and/or try to get negative items off your credit report. You can try to dispute negative items on your own or hire a credit repair agency.
  2. Work on building business credit – Ultimately, you want to be able to borrow money without having to provide a personal guarantee or using your personal credit to obtain it. There are programs available that you can use to do this. It requires some time and effort, but if done correctly, it should allow you to be able to raise capital using the strength of the business credit profile. I recommend this option also to people with good credit, because it is always beneficial to have the business rely on itself for funding and have the owner be removed from any guarantees.