Entrepreneurship and the idea of owning your own business is what a lot of people think of when they imagine the American dream. It’s one of the basic ideologies our country was founded on.
With a lot of hard work and determination, any of us can create a business that will ensure a good future for ourselves and our family.
But what if we need financial help to start our business and we have bad credit? This happens to be one of the biggest obstacles to starting a small business, especially during poor economic times like we’ve experienced in the past few years.
This doesn’t have to be the case! Believe it or not, there are ways to start a business when you have bad credit.
Here are a few:
1. SBA loans
The Small Business Administration backs loans for entrepreneurs who may have less than perfect credit.
The SBA works with qualified lenders who want to fund new businesses and guarantees up to 90 percent of the loan against default. This relieves some of the risk for the lender, making it more likely they’ll issue a loan.
The SBA 7(a) loan program has a $50,000 limit on loan guarantees, but most small businesses are started with much less.
2. Government lending programs
There are many federal and state programs designed to encourage small business startup and expansion.
Many of these are geared toward specific business types and demographic groups. Examples include women- and minority-owned businesses, new businesses in rural and urban settings, specialized technology businesses, etc.
The website business.usa.gov will provide all of the information you could want for these types of loans.
“Many entrepreneurs have started
a business using investment sources.”
In recent years, this new type of lending has become popular among entrepreneurs with bad credit and who need relatively small amounts of capital.
Microloans come in all different flavors and types. There are federal, private and even nonprofit microlending programs – just be sure to do your research.
You also should be prepared to pay interest rates that approach credit card APR levels.
4. Private and specialty loans
In this era of low rates on interest income, some specialty lenders or even privately held lending companies offer loans to startups in an effort to earn better returns. The criteria for lending are often lower, although the interest you pay will be commensurate with the risk the lender anticipates.
You also should be prepared to put up a portion of your business as collateral.
5. Personal loans
Many new businesses are started using seed capital from personal sources like family and friends. Consider offering part ownership if that’s a practical solution.
You also can reach out using social media to expand your list of potential investors. However, you should exercise a great deal of caution when using this method.
Many of the personal loan sources may be willing to take a chance on you, but they should also be warned about the possibility of losing their entire investment.
Being creative with your methods of raising capital can mean the difference between success and failure in a new business. Just because you happen to have bad credit doesn’t mean the doors are closed to you.
Many a successful entrepreneur has started his or her business using investment sources that might be considered outside of normal channels, but with diligence and a lot of hard work, your new business dream might just become a reality. Good luck!
Photo source: theyec.org