From salary and operating costs, to advertising and promotions, the average small business requires anywhere from $2,000 to $5,000 to launch – and that’s before making your first sale!
As such, it makes sense why small business loans, which fund the initial hurdles that accompany being your own boss, are so popular. However, in order to secure those loans, you typically need better-than-average credit, especially if you’re looking to land at the lowest possible rate. But don’t fret.
If you have dreams of launching your own business, but have less-than-stellar credit, you may be surprised to learn that you still have options available to you. With a bit of creativity, and a lot of patience, funding your business may be more in reach than you initially thought. And it all starts with – you guessed it – credit.
The Difference Between Business vs. Personal Credit
The key in differentiating your business from your personal financial standing is understanding the difference between business and personal credit. Your personal credit is tied to your social security number, and factors in your personal spending history, debts, and repayment history. Business credit, on the other hand, is completely separate from your personal credit history, as it’s directly tied to your business’s EIN number, meaning it only factors in your business’s financial history.
However, just because the two aren’t linked, doesn’t mean they aren’t related, especially if you’re just starting out and looking to fund your business. If you’re a sole proprietor, for example, banks and lenders will definitely reference your personal credit to see how well you manage debt before extending business credit.
It’s also worth noting that building up business credit, just like personal credit, takes time. So as you set out to build up your business’s financial reputation, there are creative ways to fund your business without having to have a good (or even fair) personal credit score.
- Get Creative With Funding
Oculus, Exploding Kittens, PopSocket – the one thing all of these multimillion dollar brands share in common is that they started off crowdfunded.
Crowd-sourcing sites (like Kickstarter and GoFundMe) offer small businesses funding in the form of “social lending,” where members borrow and lend to each other. This non-traditional lending is a great way to secure the funds to start your business, especially because it doesn’t weigh heavily on personal credit scores.
Whatsmore, loan rates from this kind of funding are typically lower than a traditional bank loan, and funds received can be used for any purpose, including starting and running your business.
2. Apply For a Business Credit Card
Sometimes, it costs money up-front to make money long-term. While you should always weigh the pros and cons of taking on additional debt, a small business credit card can be a good option to get your business off the ground – especially if you can secure a low interest rate, and, even better, receive rewards points to invest back into your business.
By using a business credit card responsibly, you could be working to build up your business’ credit, putting yourself in a better position to qualify for future credit and funding.
3. Seek Out Grants
Who doesn’t love free money? With varying options depending on your businesses’ industry and sector, starting a business with a grant can be a great financial tool to fund your dreams.
Be wary, though – it can take a lot of time and effort to research and apply for funding, but there are plenty of federal, state and private small-business grants and resources available for small business owners looking for financial assistance.
As you build up your business’ credit and financial standing from scratch, know that there are ways to fund your business from the start. With a bit of creativity, and some patience, your business will be on track to securing the funding you need to get going. You’ve got this!
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The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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