5 Options to Consider if Your Credit Rating is Holding You Back From a Business Loan

Starting your own small business is a very exciting endeavour. Maybe it’s a new business idea that you’ve come up with recently and couldn’t wait to get started, or perhaps running your own company and being your own boss is something that you’ve been hoping to do for years and have only just been able to take the plunge and get the ball rolling. Either way, one thing that you definitely need in order to start and run a successful business is money. The good news is that since running a business from home is more accessible than ever before, many business ideas no longer need a huge amount of startup capital.

On the other hand, if you need to open an office, store, or another workplace for your business to operate from, you’re probably going to require more financing. Most new entrepreneurs will get the money that they need in the form of a business loan.

To get a business loan, you’ll need to apply to the bank and have a solid business plan in place. But, getting a business loan isn’t always easy, and in many cases, your personal credit rating will be taken into account since your business is brand new and doesn’t yet have any financial accounts to consider. If you have a poor personal credit rating, your chances of being accepted for a business loan are slim. Here are some strategies you can use to improve your credit rating and get your business off to the best start.

 

Learn More About Your Score:

First of all, you will need to know exactly what your credit rating is, why it’s at this level, and what you can do to improve it. You can do this by using a credit checking site that allows you to see your credit score and determine what it is that brokers see when they run a credit check on you. You will be able to see any loans, credit cards and other credit lines that you currently owe, along with any missed payments, late payments, and defaults that could be affecting your score. Many tools will also allow you to compare your score with the average in your area or the UK average, so you can see where you stand.

Along with getting as much information as you can in order to improve your credit score, another important step to take when using a credit checking site is to look for any errors and mistakes that could be causing your credit score to drop lower than it should be. Simple mistakes, such as a payment listed as missed when it wasn’t, could have a significant detrimental effect on your score, so you should petition to have them removed as early as possible.

 

Repay Current Debts:

Debt is inevitable for many people who decide to start their own business, but don’t make it harder for yourself by starting your business when you are in a lot of personal debt. Of course, if your business becomes successful you might end up earning more than enough to repay your debts and then some, but it’s important to bear in mind that most businesses don’t break even for the first year or two, so the more financially stable you are when you start, the better. And, being in a lot of personal debt can seriously impact your ability to get business finance. Paying off your debts now will be a weight off your shoulders as you embark on your new business venture and will improve your chances of getting the funding that you need to invest in your new company and make it succeed. You might want to consider using the debt snowball method, which involves repaying your debts from the smallest to the largest, in order to become debt-free quickly.

 

Responsible Borrowing:

If you are already debt-free but have a poor credit rating due to past financial issues, borrowing money and repaying it responsibly can help you rebuild your credit score. The key here is to borrow small amounts of money that you are able to easily repay on time and in accordance with the agreements set out when you applied. Loans for people with bad credit are available from authorised brokers such as New Horizons, which are often small, short-term credit lines that you can easily repay in one go or in a few instalments to start seeing improvements on your credit score.

New Horizons is an online broker offering a variety of options to suit every type of borrower, including poor credit loans. In addition to loans for bad credit, you might also want to think about getting a credit building credit card. You can use this card to pay for items that you would purchase normally, such as fuel or groceries, and then repay it in full to help improve your credit score.

 

Consider Alternative Borrowing Options:

Of course, not everybody is in the position to wait a while to repay all their debts and improve their credit rating before starting a new business. Perhaps you want to get started right away or have a product or service to sell that needs to be on the market as soon as possible. Thankfully, there are many alternative options to business loans that you might want to consider if your chance of being accepted by the bank is slim. Government-backed small business lenders are an ideal option as they are less stringent than bank loans and have a high acceptance rate for new entrepreneurs. And, you can often apply for smaller amounts of funding compared with a bank loan, which can be ideal if you don’t need a huge amount of capital to get started.

 

Find an Investor:

Finally, if you’d rather not borrow money in order to get your business started, finding an angel investor can be an ideal alternative to a loan that will not require you to worry about your credit score. Investors work with businesses to help them get started by offering money in return for a share of the company. There are many ways to find potential investors in your business; ask around in your network or search online investor sites and networks to find people who have money to invest and are looking to put it to good use with a business like yours. Once you have shortlisted some potential investors, the next step is to pitch your business idea to them. Remember that the investor will be purchasing a share of your business, and the main factor for them is whether or not you expect your business to turn a profit that leads to them getting a good ROI.

Deciding to start your own business is exciting for anybody who wants to be their own boss and make a living on their own terms. However, your poor credit score could hold you back from getting the funding that you need to get your new company off the ground and headed towards success. Keep these tips for improving your credit score in mind before applying for a business loan from the bank or consider alternative borrowing and investment options that won’t take your personal credit score into account.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.