If you are a budding entrepreneur with a killer business idea, you might be just a business loan away from making it a profitable reality. Unfortunately, access to finance can be the biggest hurdle to entrepreneurship for some people; particularly those with a far from squeaky-clean credit history.
Typically, a less-than-perfect credit rating can make it harder for lenders to consider giving you money to start up a business, simply because your track record for repayments is not as good as it should be.
There are various reasons why your credit rating might have been affected. You might have received one or more County Court Judgements (CCJs) which are a sure-fire signal of repayment problems. Most risk-averse business lenders will also delve into the public company accounts if you are a limited company.
This will allow them to ascertain how much working capital you have to play with. In some cases, even if your company has thrived in recent times, if one of your company directors is also involved in another business that is failing or has been wound up, this can also inadvertently harm your chances of gaining access to traditional finance.
Of course, you too may have personally struggled with a previous business and have a history of multiple defaults on loans or winding up orders. However, there are lenders out there that don’t lock back and prefer to look forward, assessing your bad credit loan application on a case-by-case basis.
Providing your income and expenditure suggests you can afford the repayments, these kinds of loans can be approved within 60 minutes. They’ll still require bank statements for the last few months and will want to ensure your defaults aren’t too significant but, providing everything is acceptable, the funds are usually cleared into your business account on the same day.
With a poor personal or business credit rating, it can be difficult to get unsecured finance, but with a little creativity and confidence you may be able to obtain funds using various forms of personal security. Many lenders appreciate personal guarantees made by bad credit borrowers, who commit to repaying the business loan even if the business fails to do so. Of course, if your business fails and you are personally liable for the debt, your own assets will be at risk – this is not a decision you can make lightly.
If you already run a business and you are looking to set up a new venture, you could always raise capital through invoice finance. If your existing company is getting plenty of work and is owed significant sums of money already in the form of invoices, you can release the value of your invoices. There are invoice finance lenders that will take your invoices, give you what you owe in cash and then chase your clients for the outstanding payments on your behalf. This frees up your working capital to invest into your next exciting idea.
Ultimately, there is no point ducking the issue of your bad credit history. If you try to avoid disclosing your past financial difficulties, a lender might be less inclined to lend to you once they find out your problems for themselves. Honesty is always the best policy in all areas of business.