Wanting to create your own business and be your own boss is a great dream to have, especially if you have an idea or a talent that you’d like to share with others. That being said, transforming your entrepreneurial dreams into reality can be challenging, especially if you struggle financially.
If you are living in debt and have bad credit, you might be wondering if it is even possible at all to start your own business. In short, it is possible, but what you should be really asking is whether or not it’s a good idea, and the answer to that is: no, not really.
Before considering whether or not you can own a small business, it’s important that you get your financial situation in order. Here are some tips on how to improve your credit and you may even want to consider getting professional debt help if you are in a really bad position.
What Bad Credit Means for an Entrepreneur
It’s very rare that someone is able to completely fund their new business completely off of their liquid assets, and thus many people end up relying on loans. If you have bad credit, it’s probably safe to assume that you do not have a large amount of savings, meaning you will also need to take out loans – here is where you have a problem.
If you have bad credit then banks and credit lenders will see you as a high-risk borrower, meaning that either you will not be approved for a loan or you will get one at high interest. High interest loans are not ideal for a new business owner, especially considering it typically takes two to three years for a business to turn a profit. The higher your interest, the less likely you are to earn any money because you will be spending it all on paying off your debt.
There are a number of payday and second-tier lenders out there (non-bank lenders) who advertise loans that seem too good to be true, and that’s because they usually are. If you have been denied a loan by a first-tier lender and are considering a second-tier lender instead, make sure you read the fine print.
These types of loans are usually extremely high interest and for longer terms, meaning you will be paying more for longer than you would with a regular loan. Make sure you check what the interest rate is and whether or not it lasts at that rate only for a certain period – some will stay at one rate for a certain period and then suddenly go up at the end of it.
At the end of the day, these kinds of risky loans just aren’t worth it. There are other ways to start a business with bad credit, but the safest and smartest option is usually to improve your credit first.
Look Into Credit Counselling
If you want to improve your financial situation it might be time to talk to a non-profit credit counselling agency. They can give you advice about how to improve your credit and eliminate your debt. For ambitious entrepreneurs who want a fresh start, this might be your best option.