While having a bad credit score will make it harder for you to obtain financing for your business, it does not make it impossible. You will be less likely to get a traditional bank loan, but there are alternative funding options. For instance, a microloan, usually offered by credit unions, has lower credit requirements due to the small loan amount.
Another option is a merchant cash advance, which provides businesses with upfront cash, in exchange for a portion of future credit or debit card sales. The repayment will be in the form of a fixed percentage of your daily credit card receipt volume or fixed monthly installment payments, until the advance you took is paid back. Another viable option would be to have a business partner with great credit score as a credit partner, to obtain lines of credit in the form of business cards.
While getting adequate financing to your business is important, it is also vital that you begin the process of improving your credit, so you can get access to better financing deals in the future. You can find some helpful tips in WalletHub’s How to Improve Your Credit Score guide.
Your credit score is certainly going to affect your ability to borrow, which you already know. However, if you're going to start a business, what you might consider doing is starting with family and friends who know you and feel you can be trusted as most financial institutions will not lend to someone with such a low credit score. As far as starting a businessis concerned, make sure you understand the difference between equity and loans. Any lender and/or equity investor want to know how much money you got to put it risk so you have what we refer to as "skin in the game". Loans mandate monthly, quarterly or annual payments with interest and anyone who might consider lending you money would want a relatively high rate of return based upon your credit score and also the risk of starting a new business. Equity on the other hand may be a more desirable place for you to start. You might offer 25 or 30% of your business to potential investors in exchange for an ownership interest rather than loans. Coming up with a determination as to what 1%, 5% or 10% is worth to a potential investor is problematic and is something you have to figure out for yourself as to what you're willing to give up in exchange for this money that does not need to be repaid. We call this risk capital and if you go in this route, you want to be sure to hire some professionals who might be able to provide you with the information necessary for a "clawback"which is a device that would allow you to repurchase the stock at some future point in time under a prearranged agreement. As these discussions are going on, you have to find a way to improve your credit score to get up to least 650 and possibly 700 over the next couple years. It may well be that you need some cosigners but you have to be sure you can convince them that they're not going to get stiffed. Hope this helps a little and good luck
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