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Getting Funds for a Business When You Have Poor Credit

Owning a business or wanting to start one when you have bad credit isn't easy. Your credit score will directly impact your ability to qualify for any type of loan, which most small businesses need to get started. If your hopes of launching a company have been halted by bad credit and debt, this article is for you. The first thing to know is that debt management and credit recovery should be your top priority. Your business loan options as a small business owner can all but vanish if you are not a safe candidate to lenders. 

You may not want to hear that, but there is no real fix for bad credit except raising your score. Besides, even if you could acquire funding through a lender, you would ultimately only wind up in the same position. Expecting any business to magically pay off all your debt isn't a wise ambition. The purpose of this post isn't to give you any cut-and-dry workarounds that avoid getting to the root of the issue. Instead, we'll look at the importance of developing a credit repair strategy and some potential financing options you can consider in the meantime.

Fixing Bad Credit from the Bottom Up

The first thing you need to do is get your free annual credit reports. Everyone is entitled to three free reports each year from the national credit reporting bureaus. It's important to get a report from each one because not all lenders use the same reporting agencies. This means a report from one could still be missing debts from another, and you may not have the full picture of what you owe. You may realize some details are inaccurate, so you can file a dispute. You can also call lenders directly to ask them to confirm their records or update their files.

The next thing you have to do is work on improving your payments. Bad credit comes from a lot of reasons, but poor payment history is one of the worst you can have. Any loan lender that sees you have a history of missed payments will not want to work with you. Your first course of action needs to be getting all your outstanding debts current. Work with lenders to negotiate arrangements. Refinance and consolidate what you can, and consider using the snowball method to wipe out as many small balances as possible.

Bad Credit Financing Options

First and foremost, avoid taking out payday loans or any loans that offer guaranteed approval. These tend to come with exorbitant interest rates that lock you into a cycle of debt. There is no such thing as guaranteed approval, only approval at a cost. The bigger the risk you pose to a lender, the more restrictions and costs they're likely to incur as justification for lending to you. So, avoid any of the get-fast-cash gimmicks. Instead, look at options that may already be available to you. For example, if you have a life insurance policy, you may be eligible to sell it for a lump sum of money. You can earn more for your policy by selling to a third-party buyer than settling with your provider. You can review a guide on selling a life insurance policy for cash to help with your decision.

You may also consider applying for a secured business credit card. While it doesn't extend an enormous line of credit, you can generally acquire one even with bad credit. 

The real reason you should get one is that paying it on time and using it well will help you increase your score over time. Personal loans from friends and family are also potential options. While this should only be done with a trusted relative, it can give you the financial assistance you need without lowering your score or putting more debt on your credit report. If you go this route, you should not simply accept money as a gift or handout. Treat your loan agreement with them as a professional agreement, and draw up a legal loan contract that details your repayment plan. Your loan agreement should include:

·       How much you borrowed (the principal amount)

·       Applicable interest rates. It can be 0 percent, but this should be specified

·       Your repayment terms. This can be a single amount due by a certain date or monthly installments

·       Courses of acquiring non-repayment and any collateral you put up