Getting Funding and Managing Finances For a Start-Up With Bad Credit
Having a poor credit history can make it tricky if you want to set-up a business as a sole trader. And itâs even more difficult if youâre starting-up a limited company or limited liability partnership.
Thatâs because with these last two types of companies, itâs mandatory to have a separate business account so that personal and business transactions canât get mixed up. But most high street banks insist on directors having to pass a personal credit check before a business account can be opened.
How to Finance Your Business if You Have Bad Credit
If you have credit issues, it’ll be tough to get a High Street bank to approve a loan and some channels of business financing may not be available to you. But there are alternatives out there.
This is a government-funded scheme that provides funds and mentoring for startups or businesses that have been trading for less than 12 months. If your application is approved, you’ll receive a low-cost and unsecured loan that must be repaid within 5 years.
Bad Credit Business Loans
Type ‘Bad credit business loans’ into a search engine and you’ll find a number of companies offering loans to businesses with poor or limited credit history. The APR offered may be high, but you may decide that it’s worth it to get the valuable start-up capital you need. As a starting point, check out comparison website money.co.uk for some options that may be available to you. Just be sure to carefully study any small print relating to any loan you may be offered.
A crowd of investors can each buy a stake in your business idea by contributing towards an online funding target. You just make your pitch on an online platform, and interested parties can help you reach your funding target by donating. You’ll typically be charged a fee of 5% once you reach your target1, but if you don’t there’s usually no fee.
Ask Friends and Family
This really should be regarded as your last option. Although loved ones probably won’t demand interest or tight repayment terms, it could also hurt important relationships if you hit problems that make repaying the loan impossible.
Once you have your start-up money, you’ll need a safe place for it.
Managing Your Business Finances - High Street Business Banking
With poor credit history, you may find that it’ll be difficult for a typical High Street bank to approve you for a business account for a limited company, as this will entail credit checks that you probably wouldn’t pass. However, it may be worth asking for a loan with a bank if you happen to have a current account with them. The loan may be secured against any assets you may have, so think carefully before putting your home on the line. Some retail banks offer basic business accounts that you may be approved for, but if you have bad credit, you’ll probably be specifically asked to not go overdrawn without having an agreement upfront.
Improving Your Credit Rating
Having a decent credit rating makes everything from opening a business bank account to getting credit easier - both in your personal and business life. That's why it's important to try and improve your rating if you have bad credit.
The first step is to check your rating with a credit reference agency, such as Equifax or Experian. Review the information and ask for it to be corrected if any details are wrong or out of date, or ask for a notice of correction to be added to your file that explains your situation. It's also vital that you pay your bills or any credit repayments on time. If you do have credit cards, it's best to pay more than just the minimum so that you chip away at the capital borrowed - as well as paying the interest. In order to do this, you'll probably need to improve your cash flow, so invoice your clients as soon as possible and try to negotiate tight deadlines. On the other hand, see if it's possible to enjoy longer payment terms when it comes to paying your suppliers.
Prepaid Business Cards
There’s another alternative to trying to find a bad credit business account on the High Street: card based, online accounts such as the Cashplus Business Account. Credit checks aren’t required to open an account, so even if your personal or business credit history is poor, this won’t impact your application. The application process typically takes just a couple of minutes online, so as long as your business is based in the UK and all required details can be verified, your account could be up and running in minutes.
Preventing Further Damage
If your credit history is bad, don’t make further loan or other credit applications, because if they’re rejected this could add further bad news to your file.
When your credit rating has improved and you do have access to credit, avoid using the maximum amount available to you. Firstly, it’s a good idea to have some available for unexpected emergencies or opportunities. Secondly, the credit provider may think that it looks as if your business is up against the wall, prompting them to be wary about offering you further credit. Also, be careful not to make a lot of credit applications all at once, as it will look as if your business is struggling.
Although starting a business with bad credit history isn’t easy, with a little persistence, anything’s possible.
Thanks For Reading
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