5 Tips for Entrepreneurs with Bad Credit

Entrepreneurs with Bad Credit

Starting a business comes with a certain amount of risk. Unfortunately for entrepreneurs, that risk can have lasting effects that impact their credit score. Some entrepreneurs don’t discover the damage to their credit score until they try to secure funding, which creates a list of new problems.

When dealing with bad credit, the only way out is through. Here are five tips for entrepreneurs with bad credit to help continue and improve small business operations.

Explore Alternative Financing Options

Entrepreneurs are no longer restricted to traditional loan options from major banks; there are various opportunities for financing a business. If you need to borrow money to expand your business, look at alternative funding options.

Securing bad credit loans is a common solution for entrepreneurs facing this issue. A bad credit loan offers approval for those with less-than-ideal credit scores and can be used to help rebuild credit. These loans typically have higher interest rates to cover the lender’s risk.

Working with investors can also provide a cash infusion to help expand your business. This option is typically fueled by a personal connection and a thoughtful business plan. The downside is that while you retain control of the business, you will have to answer to investors.

Crowdsourcing is another option for securing financing. This process typically works as a presale or donation campaign with gifts in return. Crowdsourcing requires a lot of marketing and follow-through.

It’s also worth exploring local initiatives, such as government grants, when seeking financing for your business. Remember that you aren’t obligated to take the full amount of a loan you’re approved for; take only what you need.

Work with a Financial Advisor

If you struggle with your business and personal credit as an entrepreneur, working with a financial advisor can be beneficial. A financial advisor can help you put a budget and financial management strategy in place.

In addition to helping you get your credit back on track, they can guide you through creating a retirement plan and emergency fund so you’re less dependent on credit when an issue arises. Consider working with a financial advisor who specializes in entrepreneurship and small business.

Create Tangible Goals

Developing realistic goals about getting your credit and finances back on track is a must for long-term success. Keep in mind that a goal without a plan is a wish; you’ll need an outcome-based action plan to make your goal happen.

Start with the desired outcome and reverse engineer it into smaller, tangible steps. For example, if your goal is to improve your credit score by 100 points, outline what tasks need to happen and when you’ll complete them: disputing negative items, making payments on time, paying down existing debt, etc.

Take a Scaling Approach to Growth

A common mistake among enthusiastic entrepreneurs is overextending during the early days of the business. Taking a scaling approach to growth can help minimize debts and improve cash flow, allowing the business owner to invest more in the company as demand grows.

Say you’re starting a yard maintenance company with snow plowing. Rather than purchasing three new trucks with plows before you have clients, it might make more sense to purchase one used truck to start. As your client list grows and it’s no longer possible to service all clients with one truck, purchasing another vehicle and hiring a second driver would be more financially realistic.

Scale back at the start so you can scale up later.

Final Thoughts

Having bad credit isn’t a deal-breaker for entrepreneurs; it just means you have to be strategic and creative when it comes to financing. That said, taking actionable steps to improve your credit will open access to more funding, better interest rates and terms, and unlimited growth potential.

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.