Funding a small business when you have bad credit


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Crowdsourcing platforms, sales history could help

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

Dear Your Business Credit, 
Hi Elaine! I came across an article of yours and wanted to
ask you your advice on several areas of contradicting information I have found
on the internet for starting/obtaining small-business credit.

Let me tell you where I am in the process of starting my
business. As of right now I have no ITIN or EIN number but will be filing for my
LLC next month. I cannot use my personal SSN due to a recent
breakup which has crippled my personal credit unfortunately.

I have a unique and very profitable marketplace for my
business. I just need the funds to get it up and going. I have seen articles
stating some banks/lenders don’t require you to have a business ITIN or EIN to
obtain a card. Is this true? And if so what banks or financial institutions
will to your knowledge? If untrue, once I get my EIN and/or ITIN number which banks/credit
lenders would be willing to offer a loan to get me off the ground and running
with no established business credit?

Honestly, I’m looking for between anything between $25,000
to $75,000 to get me started but anything lower would suffice to get this
snowball rolling downhill. Any advice, expertise, or suggestions would be very helpful right now since this is literally the only area I am
lacking. – Richard

Dear Richard, 
There’s a lot of confusing information out there. When you
start a business, your ability to get traditional forms of credit will be based
on your personal credit.

Small-business credit cards and loans generally
require a personal guarantee and somewhere in the process, you will almost
always have to provide a social security number. (For more on this topic, check
out my previous column “
an ITIN help me get a business card without a personal guarantee

Alternative financing an option

That does not mean you cannot start the business. Some
entrepreneurs in your situation turn to alternative financing. For a look at
how alternative lenders work, check out “7
tips for using online alternative business lenders

Generally speaking,
alternative loans will cost you more than a traditional bank loan, sometimes
quite a bit more, but one benefit for an entrepreneur in your situation is there
are products that do not require a personal guarantee.

However, I do not recommend that anyone with severely
battered personal credit borrow money to start a business. Business
startups, even very promising ones, don’t always work out as planned. There is a
lot of potential to make a bad situation worse by loading up on debt.

Even if
you borrow money that has no personal guarantee, you will have to sign an agreement
that would make the lender whole in some way, such as by seizing the collateral
you put up. That will have consequences for you.

Tip: Even if you borrow money that has no personal guarantee, you will have to sign an agreement that would make the lender whole in some way, such as by seizing the collateral you put up. That will have consequences for you.

Get supporters

I’d suggest finding another way to finance the business and,
in the meantime, get advice from an attorney who specializes in credit-related
issues to deal with the credit problems from the breakup. The sooner you can
repair your personal credit, the sooner you will have to affordable financing
in the future.

Plus, clearing the mental burden of that stressful situation
will free your mind to focus on growing your business.

You didn’t mention what type of business you are starting.
If it is a product-related business, consider running a crowdfunding campaign
on a site such as Kickstarter or Indiegogo.

Entrepreneurs often create a
prototype or visual representation of the product they would like to make and a
description of its merits and sometimes ask those would like to buy it to pay
for pre-orders.
The money from these pre-orders is then used to actually produce
the product. It’s essentially a way to get your customers to finance your

Test the market

If you would like to sell a service, try test marketing
it online, either through a platform that sells services in your industry or your own website. For
instance, you might sell a professional service on Upwork or Freelancer. If you
start your own site, it may be hard to get eyeballs at first. It may be helpful
to do pay-per-click marketing on a site such as Google or Facebook to target
your ideal clients and see if they buy. 

Putting your idea out into the marketplace will give you
access to valuable feedback and, if people buy what you’re selling, bring some
cash flow into the business. It could turn out that you don’t need as much
money as you are projecting to get going.

Good luck. I hope you’ll write back
and let me know how your business turns out.  

See related: Funding a small business with credit cards, 5 loan options to fund your small business

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