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How To Get A Startup Business Loan With Bad Credit

You’ve got an idea. A great idea. It’s going to be the next big thing. But as you try to start up your startup, you hit a snag: you need seed capital, and the banks won’t give it to you. Something about having ‘bad credit’.

You’re disappointed, even crushed. But don’t despair: this is a common challenge entrepreneurs in New Zealand face and, with the right guidance, it can be overcome.

Here’s what you need to know.


Why am I being refused business finance?

First, let’s understand the problem you and your lenders are facing. The reason you are being refused finance for your startup may simply be a case of having bad credit.

If you’ve ever borrowed money before, you’ve got a credit score. When you apply for a loan, the lender will check this credit score as part of your application. If you make regular repayments and don’t take out too much debt at once, your score will improve. Our sister company, Avanti Finance, has an excellent guide on credit scores that we encourage you to read.

The lower your credit score, the riskier the loan is, and the less likely you’ll have your application accepted. If you’ve got defaults in your past or a history of missed repayments on a car loan or personal loan, this could be the reason for a rejected application. And if you haven’t started a business before, you won’t have an equivalent commercial credit score yet, so all the lender can do is take a look at the less-than-stellar personal credit score.

You need to start a business to get a commercial credit score, but you need a commercial credit score to start a business! Here’s how to overcome that catch-22.


Getting startup capital with bad credit

Option 1: Sell assets

If you have a valuable car, a lot of equity in your home, stocks or shares or any other form of valuable asset, a simple solution to getting the capital you need is to sell them. However, it’s important to note that once they’re gone, they’re gone, and you won’t be able to use them as security. Speaking of which…


Option 2: Put up more security

If poor personal credit is making you risky to finance, provide some security to make it easier for lenders to say yes. This is usually property, but can be another valuable asset as well, depending on your lender.


Option 3: Pursue other form of finance

There are lots of ways to get capital for a startup without going through a lender first – though they might not be suitable (or even possible) for your business idea. Here’s our guide to the different forms of getting capital from entities like angel investors or crowdfunding platforms.


Option 4: Use a guarantor

Lastly, if you don’t have great financials yourself, you can ask someone who does to act as a guarantor. This means they are responsible for fulfilling the terms of the loan if you don’t or can’t.


What’s next?

Once you’ve used this alternate source of capital to fund your startup and successfully run it for a year or two, you’ll likely have solid enough commercial credit to be able to get funding through a lender. Because your commercial credit score takes precedence for business lending over your personal, those mistakes in the past won’t hold you back anymore!

For more advice on getting funding for your startup, get in touch with the experts at GetCapital today.