You’re not the only one thinking of starting a business if you have poor credit. An Experian study shows that more than one third of Americans have subprime credit scores (i.e. below 670). This is the threshold for prime loans.
Lenders believe that subprime borrowers present higher levels of risk . They also tend to have a history if missed or late payments. They have a high ratio of debt to income. Lenders charge subprime borrowers higher interest rates because of this. Unfortunately, this is one of the side-effects of poor credit.
Can you still start your own business despite this? Yes, even with bad credit or subprime credit scores, you can still start your own business. Although it might seem more difficult and lenders are less likely to approve your loan request, the reality is not so bad. These are five strategies to start a business, even if your credit is not perfect.
1. You should look for other financing options
Even if your credit score is not perfect, there are many financing and loan options available to small businesses. There are many options for financing small businesses, including loans from family members, friends, payday loans and credit cards that are specifically designed for them. Be aware of the following:
- Avoid unscrupulous lenders
- Be careful when choosing the amount of your loan.
- Take into account both the pros as well as the cons of the loan term
- Make sure to read all the fine print.
2. Get a secured loan
To secure a secured mortgage, you will need to provide collateral such as your home. The lender may take your collateral if you default on the loan. Although this type of loan is easier to obtain, it can be very risky as you could lose your home if your payments are not made on time.
3. Find a Co-Signer
If you are unable to get approved for a loan by yourself, you may be able find someone with good credit who is willing and able to co-sign. They are equally responsible for the loan and co-signing for you is a huge risk. Before asking for a cosigner, make sure you have a strong business plan and can show that you are a high credit risk.
4. Consider Using Social Lending Sites
Lending crowdfunding platforms connect borrowers and investors who are willing to finance their loans. This is a great option for those with bad credit . There are typically no credit requirements. There are many other benefits:
- Traditional loans have lower interest rates
- You can get smaller loans than banks and building societies.
- You may be able to pay off the loan sooner without penalty.
5. Check to see if you are eligible for a small business grant
A subprime credit score may make it difficult for you to obtain a small-business loan. However, you may still be eligible for small business grants. These grants may be from the government, non-profits, or private companies. Although eligibility requirements may vary, most grant recipients will take into account factors like the size of your company, your credit history, as well as your business plan. It’s important that you submit your application as soon as possible as funding is often limited.
Do not let your bad credit get you down. There are many ways to start small business ownership. These five strategies can help you overcome bad credit and build a business. To help you develop healthy financial self-care habits, check out our infographic on financial stress.
