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How to Start a Business on Bad Credit

Don’t be locked out of the American dream. These two options can help you start a business even on bad credit

Bank lending has slowed to a crawl since the financial recession and even good credit borrowers have had trouble getting loans. It’s made it nearly impossible for anyone with bad credit to start a business.

That means the disparity between rich and poor may grow even larger as those with access to credit are able to start businesses while those with poor credit are stuck working for the owners.

But are there other options for people with bad credit? Almost a third of Americans have a credit score below 640 FICO, the cutoff for a ‘prime’ credit score. Is it fair that they should be locked out of the American dream?

Fortunately, there are two things you can do to start your own business even if you have bad credit.

Starting a Digital Business on Bad Credit

Your first option is to look for businesses that don’t need a lot of startup money.

Traditional businesses selling products are going to be expensive to start. You’ll need materials and equipment as well as money for shipping and marketing.

Digital businesses can be started and operated with almost no money. I’ve started each of my six websites with less than $100 and spend less than five hours on each per week. I’ve made over $37,000 in the last six months between the websites, self-publishing books and freelance work.

These kind of digital businesses is the topic of one of my websites, My Work from Home Money. There’s a directory of the best work from home jobs on the site but let’s look at a few businesses you can start on bad credit.

  • Running your own website – This one is probably the easiest but takes longer to start making money. You’ll need less than $100 and it will take a few hours each week to write articles for the site. You make money through advertising and selling your own products or services.
  • Website consulting and services – Working on your own site, you’ll learn a lot about what it takes to be successful. Most of the other bloggers I know also work as consultants to other businesses on a part-time basis.
  • Social media services – Businesses want their message to be seen on Facebook and other social sites and they’re willing to pay big money to people that can manage their profile. This is perfect for people that already spend a lot of time on social media.
  • Freelance work – Just about any job can be done freelance and it will give you the opportunity to set your own price and hours. This article can get you started on how to make money freelancing.
  • Publish a Book on Amazon – Publishing on Amazon is a great addition to blogging because you are already writing. You can easily turn your work into a book and publish it for passive income every month. Startup costs are almost nothing if you do the proofreading and formatting work yourself.
  • Selling on Amazon FBA – This is one of the most interested I’ve seen lately but will cost a few thousand to start. You source your manufacturing from China and sell directly on Amazon. The manufacturer ships directly to Amazon so you don’t have to worry about it. I’ve seen individuals build huge retail companies right from their computer with this strategy.

Getting Money for your Business Startup on Poor Credit

Your second option is to apply for a peer to peer loan for money to start your business. Since loans come directly from investors instead of the bank, these are usually easier to get than a traditional bank loan.

Launching a traditional business will usually mean a larger loan. Most banks and online business lenders require a few years in business and a minimum amount of sales.

For example, Lending Club is one of the largest small business lenders online and offers loans up to $350,000 for businesses open at least two years. You must have at least $50,000 in annual sales but the other requirements are fairly simple. Rates start around 10% on fixed payments from one- to five-years.

While you won’t need much to start a digital business, you can also use a peer loan for startup costs. A loan for a few thousand is more than enough for any of the ideas above, even selling through Amazon FBA where you’ll need to pay for merchandise to sell.

Peer loans are unsecured meaning you won’t have to put up your home as collateral but they do get put on your credit report so don’t be late with the payments. Check out this list of the best peer to peer lending sites for bad credit and some of the offers on each site.

If you do decide you need a loan to start a business, spend at least three to six months improving your credit score. Dealing with a bad credit score is easy enough if you know what influences your credit and how to boost your score.

  • Make sure there are no errors on your credit report
  • Pay off any high-interest, credit card debt
  • Consider debt consolidation to reduce the number of bills you have to pay
  • Make sure you use credit but pay the bill monthly to start building a good credit score

Check your rate on a business loan up to $35,000 – won’t affect your credit score

Just because you have bad credit doesn’t mean you need to be stuck working for someone else the rest of your life. It’s only through starting a business and being the owner that people are able to escape the paycheck to paycheck trap. Follow one of the options above to start a business with bad credit and start to take control of your future.

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