How to Start a Business with Less than Perfect Personal Credit.
So there you sit. You have great plans for a great new business – a sure-fire winner. But there’s a problem. You’re pretty sure your personal credit is less than perfect. Well, actually you know it’s in the dumpster. End of dream? No, start of a plan to get this ship out of dry dock.
Here’s what you have to do:
Find out what your credit score is before you approach any financial institution about a loan. Maybe it won’t be as bad as you think, but you won’t know unless you check it out. That means getting your report from all three of the major credit-reporting bureaus – Equifax, Experian or TransUnion. This way you’ll find out exactly where you stand.
There’s another benefit here as well. It’s possible your report may contain errors – a late payment, for example, you know you made on time. Or a claim of a missed payment, when you have the canceled check to prove it was paid. Errors do occur, and if you find any, now is the time to get them corrected, before you go out looking for business funding.
But let’s say that after checking your credit report, you determine that it’s correct, and yes, your credit comes up less than stellar. What do you do then? Get moving!
One thing potential lenders really dislike seeing is late or missed payments. If you had a good reason for that error (family emergency, out of country, hospitalized, etc.), write a letter of explanation to the credit bureau. It’s possible you could get it lifted from your report. You could also enlist the services of a credit repair company, if you don’t know where or how to start. And those high interest credit cards you’ve been carrying balances on? Pay them down to 30% of the credit limit as quickly as possible.
And a word about credit cards: Those colorful little pieces of plastic you’re carrying around are probably worth thousands in credit. If you’re like most folks, the temptation to use them to pay for less-than-necessary items (do you really need another flat screen TV?) could be a problem. If you can’t control your personal spending, do you really think a loan officer will think you can control your business spending any better? No! It really isn’t that hard to do, and whatever credit problems you might have, can be overcome by good financial management. You can do it if you want to.
Straighten out your credit problems well before going to any bank. While loan officers look fondly on borrowers with excellent credit, they also appreciate those with less-than-perfect credit who have recognized and corrected the situation. It says a lot about you and your worthiness to receive a loan. The key is to start establishing your business credit so that your personal credit doesn’t become as important. You should start doing this immediately, even if your business is a start up. There are lenders that will loan to start ups as well as established businesses but you must have your business set up correctly as a business and not as a hobby. You can work from your home and still be a legitimate business as long as all your documented information (EIN, State filings, business licenses, business phone number and address) is consistent. This is the key to unlock the doors to business funding.
And finally, one last word about credit: Once you do get your lines of credit or business credit cards, never, ever think about co-mingling your business and personal credit. Keep credit cards separate, as well as bank accounts. The temptation can be awfully strong to co-mingle, but it’s a path you don’t want to go down.
Pat Gage, The Opportunity Creator, and a leading expert in the field of business credit has helped a number of clients target his specialty, starting, expanding, and growing their businesses through his trademarked 10 Steps to Money System. The Opportunity Creator is not only a sought after business credit coach but also a national speaker. For more information on any topic discussed, visit Gage’s site at http://www.10stepstomoney.com