One of the biggest challenges for young entrepreneurs when they are trying to start up a business is of course securing sufficient funding. The most common hurdle is the fact that they have not yet managed to build up a good credit rating. Let’s take a look at some of the ways to get ahead despite a poor credit rating.
A credit score is fairly important when it comes to raising finances for your business, the higher the score the easier it will be to get loan or some other form of financing. However, it is not the be all and end all – you can still get funding with bad credit. The key is choosing appropriately so that you can begin to build up your credit so that when the time comes to move to the next level your business will have sufficient credit to do so.
Do Not Depend On Credit Cards & Bank Loans
It has recently been suggested that only 25 percent of entrepreneurs use traditional credit cards and bank loans to meet their start-up costs. That is actually great news for those seeking funding as it means that the majority of entrepreneurs are getting money from sources that are not so dependent on credit scoring. There are plenty of ways to fund a start-up which do not involve taking out a bank loan.
Check Out Alternative Lenders
When you have bad credit, it is usually a better idea to look at non-traditional lenders when you are hoping to borrow money. Young entrepreneurs may find it particularly useful to look at web-based lenders and micro-lenders as an option. Not only will these alternative lenders allow you to borrow despite your bad credit, but they report to the credit bureaus meaning that paying them back is going to improve your credit score.
There are many lenders who cater exclusively to those with bad credit and although the interest rates can be higher, securing and repaying a loan from one of them will help to build a better credit score for the future.
Do Not Overlook Grant Opportunities
While they do not help to improve your credit score, there are a number of grant opportunities out there for young entrepreneurs. It will take a lot of effort and hard work to locate and apply to these programs, which are usually offered by the government, but if you are successful the outcome will be well worth it.
These grants are not based on your credit score and as such can be a great way to secure an alternative source of funding for a new business venture.
Try To Reduce Your Expenses
Wherever possible, it is good to reduce your initial expenses. The smaller the amount you need to borrow the easier it will be to secure a loan. You can reduce your expenses by seeking out assistance from friends and contacts. For example, is there a spare office in an old employer’s building that they would let you use for a lower cost? Do you know a graphic designer who would offer some free logo design assistance to help you get started?
Having bad credit is not something which can end your dreams of starting a small business. Creativity is something that all young entrepreneurs should have and with some creative thinking and a lot of research it is possible to overcome bad credit in order to find the funding you need to get started.
Hugh Tyzack is the founder of guarantorloansdirect.com , a lender specializing in loans for bad credit. When he is not working, Hugh enjoys listening to music and playing the piano. You an find out more by visiting his website or by finding him on Twitter @badcreditloans8 and also on Google+.