Figuring out how to start a business with no money and bad credit may seem impossible. And in a lot of ways, you have to take a long way around. But if you’ve got a great idea and know where to look, it’s more doable than you think.
In the following article, we’ll be discussing 10 options that can get you one step closer to living your dream, even if you’re living in a current financial nightmare. So put on your thinking caps, entrepreneurs, and let’s get to work!
1. Avoid High Interest and Poor Terms.
Unfortunately, most startups seek the wrong kind of loans for bad credit. They instantly go for maxing out their credit cards or agreeing to the kind of payment terms that’ll make it harder to do business.
So before taking the more affirmative steps coming up, get inside your own head and kick out the idea you have to put everything on plastic in order to function. That only makes it more difficult to work your way from red to black.
2. Ask the People Who Care About You.
Ideally, you won’t have to agree to a horribly-termed loan because you’ll have alternative sources of funding — perhaps even the kind you don’t have to pay back from loving friends and family who believe in you and your idea.
So before researching the more complicated methods of how to get funding for a business, consider asking those who know you best. Some will be understandably nervous about giving you the money.
A good way around this when going to them is to not ask for the money outright. Go to them looking for advice on this great idea you’ve got. Ask them if they would like in, or if they’d consider loaning you money, and if so, what terms they would want for repayment.
You might get the money without any payback expectations. At the very least, if they agree to it, you’ll end up with a more generous payment plan and interest rate than if you went through a traditional bank.
3. Look Into Microloans.
Eventually, your startup may have to look into getting business loans with bad credit. And to that end, microloans are a great option.
There are many sites that offer microloans today. The amounts usually range from $5,000 to $25,000 but will vary among the different players.
Some even help specifically-distressed individuals, such as cash-strapped immigrants and refugees. The interest rates generally run high – some as much as 30 percent – but the injection of up-front capital can be enough to get a startup cash-flowing.
4. Check Funding Sources You Do Not Have to Pay Back.
When starting a business with bad credit, the best type of funding is the kind you don’t have to repay. Look into grants specifically designed to offer “second chances” to those in economic distress. There also could be local philanthropic organizations in your hometown that seek to lend a helping hand as part of their mission.
5. Try Crowdfunding.
Really believe in your idea but aren’t sure about applying for startup loans for bad credit? Try crowdfunding instead.
With crowdfunding, you go to a site like Kickstarter or IndieGogo and create a sales page, usually with a description, video, and incentives for those meeting certain funding criteria. If the idea and incentives are good enough, you can get everything from a video game console to a feature film funded without having to pay anything back.
That said, you will have to make good on any incentives. And that can cost some money, so make sure you’ve factored in the costs when deciding on your requested amount.
6. See If You Qualify for a Sales Processing Loan.
PayPal Working Capital is a loan that comes to mind first and foremost because it’s one of the highest-profile payment processors in the world. The program usually offers a percentage of up to 30 percent of your last year of sales.
So, if you did $6,000 worth of sales in the last year, you could get up to $1,800 in quick loan money. Of course, to be eligible, you have to use PayPal as a payment processor and the sales must come from PayPal transactions.
7. Look Into Payday Loans.
Payday loans can make some borrowers nervous because there have been predatory lenders seeking to take advantage. But not all payday loans are created equal, and there are some reputable companies out there that offer instant approval without impeding the startup’s ability to function.
8. Seek Donations.
Donations are tough if you’re a for-profit organization. Some businesses are able to pull it off if they offer great value in their content, product, or services and have low overhead.
In those cases, appreciative customers might be able to offer enough to float the boat, so to speak, as the business works on its growth plan. Patreon is perhaps the biggest online donation platform.
9. Exchange Goods or Services.
Maybe you can’t borrow the money to pay for everything your business needs. That doesn’t mean you’re out of options.
If you run into capital issues, look for service providers willing to barter what they do with what you do. For example, you’re a copywriter in need of a website and a coder starting his own site can’t write copy.
The two of you could work out an arrangement where you scratch each others’ professional itches for free. This lowers the amount of money you need to get your business moving forward, and the only real investment is your time.
10. Use Some Form of Collateral.
The home equity line of credit is the most common. But it requires you to borrow money at the risk of losing your home. And you can only borrow up to the amount of equity you’ve built in your home since starting mortgage payments.
So That Is How to Start a Business with No Money and Bad Credit.
Now, take a look at your situation. Which of these resources can you tap into tomorrow? Go for those first with an emphasis on funding you wouldn’t have to pay back.
And as you deal with the reality of how to start a business with no money and bad credit, start fixing the bad credit part of that equation. Look at your debts. Weigh it against your income.
Start paying off what you can and making minimum payments on time every month. Gradually, your credit score will increase and lenders will be more willing to consider your needs.
Thank you for reading. And don’t leave before checking out some of our other helpful startup tips!