Over the past year, countless businesses have struggled to keep their doors open. With many consumers reducing their spending, even the largest corporations have dealt with financial struggles related to the current pandemic. Yet, that doesn’t mean it’s the wrong time for you to start a business. The current climate could actually be the perfect opportunity for your fledgling business to have a successful launch without heavy competition. However, you may be questioning whether or not your credit is suitable for starting a small business. Keep reading to learn the answer and some tips on how to get started with your new venture.
How important is your personal credit history?
Unless you have all of the money upfront to finance a new business, you will need to apply for some sort of loan (which we will discuss later). This is where the value of credit comes in. As a new business owner, it is unlikely that you will have built up enough of a credit history and revenue to be eligible for a small business loan. Therefore, your personal credit will be taken into consideration when lenders of other types of loans are determining whether or not they will lend to you.
While you don’t need to have a perfect credit score to start a business, you will need to make sure that it is at least a 650 before applying for a loan. A score of 650 is considered fair. So, technically, no you don’t need a “good” credit score rating, but a fair score is ideal. However, if your credit score is not quite where it needs to be, put in place a plan to improve it.
To start off, check your current score. Every American is entitled one free credit report each year. If you haven’t already used your freebie, take advantage of it now. (Note: There is a difference between your credit score and your credit report. If you are looking to improve your chances of being approved for a loan, you want to take an in depth look at your credit history, which a report will give.) Next, if you have any, pay off outstanding debts. This might include credit card balances, medical bills, and student loans. Lastly, be sure to dispute any inaccuracies on your credit report. As mentioned above, a credit report rather than a website that simply provides your credit score will offer much more detail, alerting you to any possible discrepancies.
What else do you need to do?
Now that you are informed about the importance of credit when it comes to opening a new business, there’s a few other things you need to know and do to be a successful entrepreneur.
Create a Business Plan:
Once you have taken care of your credit score, it may be wise to create a business plan. Depending on the kind of funding you are looking for, a business plan may not be necessary, but it can assist financers in determining whether or not they want to offer you money. How so? Well, a business plan outlines your goals and how you plan to achieve them in a certain amount of time. If, for instance, a peer is willing to invest in your dreams, they want to know you have a sound plan in mind. Regardless of whether your business plan is of interest to others, you should make one for yourself. It will help you establish organization, goals, and a timeline that you can refer to.
Research Financing Options:
Before applying for any loans or grants, you should take the time to research. This step can help you determine how much money is even available to you and learn more about the terms. With grants, sometimes you have to write essays. You also may need to meet certain requirements and deadlines in order to be eligible for the money. For instance, there are some grant programs specifically for minorities or women. Loans, on the other hand, can be a bit easier to apply for. There’s no essays of course. However, the biggest hurdle will likely be finding a decent interest rate. Don’t fret, though. If a loan is looking like your best bet, keep reading.
Apply for Funding:
After improving your credit score, making your business plan, and reviewing your funding options, if you’ve decided that a loan is your best option, it’s time for you to pick the right one and apply. Two common loan types for prospective business owners who are not eligible for business loans are personal loans and home equity loans. Home equity loans typically have lower interest rates, but you need to be a homeowner who has built up enough equity in order to take advantage of this option. If neither applies to you, a personal loan might be right for you. No matter which one is best for you, it’s important to take your time to fully understand the loan application. If you have questions throughout the process, don’t hesitate to talk to your lender.
Don’t let your credit score stop you from reaching your entrepreneurial dreams. Review the advice above thoroughly and talk to people you can trust about how to get your business up and running. In no time, you’ll be able to launch your very own company.