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Do you need good credit to start a business?

Published on 11th September 2018

If you have an idea that you believe could be monetised, starting your own business could be the way to go. However, a common issue that holds many people back is the matter of funding. During the early stages, you’ll be working with a tight budget which needs to be used sparingly. So in order to invest in growth, innovation and your long-term sustainability, exploring what external funding opportunities that are available is vital. But if you’ve got an adverse credit rating, you may be under the impression that your current financial situation could be an issue. The fact of the matter is that you couldn’t be more mistaken. In truth, there are plenty of finance solutions and fundraising schemes on offer that could help. So if you possess an adverse credit rating but are still eager to turn a great idea into a thriving business venture, here’s what you need to know.

Will my credit rating be a deciding factor?

Although it’s true that it may cut you off from some products, there are still plenty of finance solutions and funding schemes designed with new businesses in mind, even with adverse credit. As such, adverse credit won’t always be a deciding factor. Nevertheless, you need to be aware that lenders and some funding schemes may still require you to provide access to your credit profile all the same. This allows them to gain a clear understanding of your current financial situation and any potential risks, which may affect how much capital you’re able to raise and (if applicable) the rate of interest that’s applied. If you’re still worried about your credit rating and perhaps wish to learn more, you can read more on the topic here.

Got a great idea for a new business in your local area? Looking to invest in growth and innovation but lack the necessary capital? Apply for a New Business Loan or learn more about how you could benefit.

What finance solutions and fundraising schemes could I apply for?

Naturally, possessing an adverse credit score can seem like a daunting obstacle to overcome, but not as big an issue as you may think. From the Alternative Finance industry, sector-specific organisations, Growth Hubs to local business initiatives, there is a variety of ways in which you can raise the funds you need. The real challenge is identifying what schemes and finance solutions you may be eligible for and deciding how to go forward. But to get you started, just some of the pathways open to you are:

Grants Schemes

Grant schemes are very popular among the new business community, namely because of the fact that you usually aren’t required to repay any of the capital your business receives. However, every scheme is unique and you’ll often encounter a lot of competition. So to avoid wasting precious time and improve your chances, you should thoroughly review the scheme’s application criteria and the purpose behind it. For example, you’ll need to consider:

  • What is the scheme is for? (e.g. purchasing new equipment)
  • Is it intended for a specific sector?
  • How much capital can it provide?
  • Does your business operate within its catchment area?
  • Is your current financial situation suitable?

Investment Crowdfunding and Loan-Based Crowdfunding

Another great way of raising funds for a new business in your local area or sector is through Crowdfunding. This involves you pitching the merits of your ideas, goods and services to investors using an online platform. As such, you’ll need to carry out promotional activities including blog writing, creating videos, uploading posters and potentially hosting live discussions. Naturally, this takes time and effort to organise but if you’re able to convince investors and show that you have the necessary expertise, there’s no limit to how much you could raise. However, you need to appreciate the difference between Investment Crowdfunding and Loan-Based Crowdfunding.

With Investment Crowdfunding, you don’t repay the funds you receive but, instead, give away equity (shares) in your business. Meanwhile, Loan-Based Crowdfunding (or Peer-to-Peer Lending) is a short-term agreement (1-3 years) that allow investors to join a panel and form a lump sum, which is repaid using a fixed monthly repayment scheme, plus interest. However, it’s also worth noting that some providers may offer terms lasting up to 5 years as well.    

Secured Business Loans

If you possess unencumbered assets such as equipment, machinery, vehicles or property (such as your own home), you could use them as collateral in order to apply for a Secured Business Loan. Secured Business Loans could allow you to borrow anything from £5,000 - £1,000,000 across either a short-term (1-3 years) or long-term (3-5 years, or more) agreement which is repaid using a fixed monthly repayment scheme, plus interest. However, you need to be aware that your credit profile may be a deciding factor and will also affect how much interested you’re charged. But, because you’re presenting collateral, it does give lenders more confidence since this involves putting assets at risk of repossession should your business default.

Merchant Cash Advance

On the other hand, if you already run a new business that’s been trading for a few months, you could qualify for a Merchant Cash Advance. A Merchant Cash Advance provides you with an advance based upon your business’ credit and debit card sales. As such, you must be able to accept card-based transactions from customers and submit your latest sales reports for at least 3 or more consecutive months. Using these, lenders will go on to provide an advance based upon your average card-based revenue. So if you’re generating around £25,000 in card-based sales each month, you could receive an advance in the same region, if necessary. Plus, despite Merchant Cash Advance being an unsecured product, little or no attention is given to your credit score. This is because Merchant Cash Advance uses a Flexible Monthly Repayment scheme that intercepts an agreed percentage from each of your card based sales until the agreement has been fully repaid.

Need help turning an idea into a thriving business venture?

Of course, deciding to start your own business could be just the beginning of a very exciting and rewarding journey. However, it’s also a huge responsibility which will take bring you face to face with any number of unique challenges. One obstacle you’re certain to run into is the matter of funding. But if you’ve got a detailed business plan, a positive vision and the determination to see it into fruition, you can succeed. So if you’re looking to raise funds and invest in the future of your business, know that there are plenty of funding opportunities available that could help. All you need to do is source an agreement that’s appropriate for your requirements.

At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise funds for your business, apply for a New Business Loan today or find out more with Rangewell.


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David Harrison

David Harrison

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