Given the strained nature of the economic climate in the UK, it’s little wonder that businesses are struggling to secure the necessary funding. Although we’re beginning to see some light at the end of this particular tunnel, the no doubt that firms need more help to navigate the ongoing Brexit disruption.
At the same time, some of the current generation of aspiring entrepreneurs are struggling with bad credit histories, creating a scenario where sourcing business funding is even more challenging.
In this post, we’ll ask whether you can really start a small business with bad credit, and if so what are the necessary steps that you’re required to take?
The Options for Entrepreneurs with Bad Credit
If you are struggling with bad credit, there are numerous options that exist outside of traditional lending methods.
One of these is peer-to-peer financing, which is a great way to source the funding that you need. The main reason for this is simple; as most lenders operating in this space overlook credit scores and histories, as they eschew these metrics in favour of your business plan, objectives and potential profitability.
Of course, the terms of any loan will be influenced by your credit score, but this simply enable lenders to offset any potential risk.
On a similar note, equity crowdfunding also provides a viable option for people with a bad credit history. This funding method strikes the ideal balance between standard crowdfunding and traditional lending, as it attracts serious financial backers whilst also helping entrepreneurs to compensate for their credit history by offering equity to interested parties.
Whilst there are inherent risks associated with this funding method (particularly the risk that you’ll be required to sacrifice too much of your equity), this remains one of the best ways to source credit as a business-owner.
Focus on Improving your Credit Score
If none of these options appeal to you (or you want to adopt a long-term outlook to establishing your startup), a preferable method would be to improve your credit score over time.
This will not only enable you to create your potential funding options over time, but it will also create a scenario where you can apply for bad credit products that allow you to finance your business directly.
Applying for a managed bank account is an excellent place to start, as service providers such as thinkmoney offer paid accounts that help you to manage your bills and finances efficiently. From here, you can gradually improve your standing in the eyes of lenders, whilst applying for small and manageable credit that can be repaid regularly and on-time.
The most important thing when attempting to restore your credit score is your outlook, as you must make a commitment to this project and remain patient with regards to your long-term goals. This may enable you to source funding on better terms in the future, whether you finance your venture using credit or seek out a third-party investor.