Having good credit reporting does definitely improve new business owner’s chances
of getting capital resources for the
new business. However, not every one has good
credit history. Yet they manage to start a new business.
entrepreneur with a bad credit score will need to look beyond banks for startup
funding for the new business. Most banks including community banks are very particular
about the credit score of an entrepreneur and are extremely reluctant to invest
in an individual who has a poor credit history.
However, there are other sources of funding that an entrepreneur can look toward
for the capital resources. The first choice is family and friends. Angel investors
are also an option for an entrepreneur with poor credit rating. The most important
part of a business proposal for an angel investor is the uniqueness of the plan.
An entrepreneur who is planning to open a new business but knows that his/her credit
history is poor should spend a few months on trying to improve the credit score.
One way to do this for an
entrepreneur is by paying off the remaining payments in
time. This will go a long way in improving credit history.
An entrepreneur with a poor credit rating should also keep track of credit history
provided by the three different credit rating agencies. Most business analysts recommend
entrepreneur fix one date every month for scrutinizing information that
appears on the credit report. This will help the entrepreneur detect any problems
in the credit report early on.
New business owners should also differentiate their business credit from their personal
credit. While large banks focus on the entrepreneur’s personal credit score when
it comes to deciding on whether to award startup capital for the new business proposal,
smaller community lenders and business-friendly banks focus on a combination of
personal credit score as well as business credit score.
An individual’s personal credit score is determined by several factors, including
the outstanding debt balance on personal credit cards, the number of open lines
of credit accounts, bill payment history and late payment history. The business
credit score is determined by similar factors as well as linked to the tax ID. A
business entrepreneur needs to get both these credit scores in order before approaching
banks for seed funding.
An entrepreneur with poor credit history should work towards building a better credit
report. This will help improve the entrepreneur’s access to funds as well lower
rates of interest on the seed capital.