Bad credit affects millions of people. If an individual is trying to get a loan, having bad credit makes this especially difficult. Many lenders are much more hesitant about giving out money, and are incredibly more reluctant to lend to "high risk" individuals--or people with bad credit. Well, at least not without attaching tons of interest or some type of required additional security.
Entrepreneurs and small business owners with bad credit find this even more frustrating because one of the first things needed to get a business off the ground is money. Unfortunately, there aren't many options business owners who are trying to get funding in spite of their bad credit. Typically, they must get a bad credit loan of some sort, but generally there is some type of catch or high interest rates.
Business Credit
One of the best options for entrepreneurs and business owners with bad credit is to establish business credit. This process can take a few years but it is well worth it because it will not be connected to your personal credit. If you establish a high amount of business credit it means that you will qualify for lower interest loans. As a side note, it is also important because if your business ends up suffering from bad credit it will not further damage your personal credit rating.
Get Started Establishing Business Credit
It is important to establish a formal business type in order to clearly specify that your business is separate from your personal credit. You can set up an sub-chapter S corporation or LLC (limited liability company), for example.
1. Business Checking Account
Get a business checking account under your business name. Use this account to handle all business finances, rather than using your personal finances.
2. Business Phone Line
Get a business phone line in the name of your company, and conduct all business related calls from this phone line. Tip: It is important to use a phone company that will report your payment history to the credit bureaus. You can call and ask. If they do not, it is best to find a company that does.
3. Vendor or Trade Credit
Establish trade credit with office supply and equipment vendors. This is simply when vendors finance any purchases you make with them--for supplies, inventory, and equipment--and you pay them off over time. Tip: You need to find vendors who will finance your purchases without requiring the use of any personal finance information and without requiring that your credit be tied to your social security number.
4. Business Credit Cards
Get business credit cards in the name of your business. It is a good idea to get a few, and to pay your monthly balances on time. Tip: Many business cards must be tied to a person's personal credit, so it may take you some time to find a company that does not do this. But remember that it is a must to have your business card separated from your personal finances and credit. It is also incredibly important to make sure that they report all of your payment history to the credit bureaus.
