Your Personal Credit Rating & Your Business
What can an entrepreneur do to make up for a less-than-ideal personal credit history when trying to get financing for a new small business?
Character remains one of the “Five C’s of Credit” so significant deficiencies in a person’s credit history that reflect poor character will usually make it difficult, if not impossible, for that person to obtain traditional funding for a new business. Things like personal bankruptcy, foreclosure, significant history of late payment on other loans, charge off accounts, etc. would be typical examples. You will often hear it said in the credit world however, that what matters most today is not the “credit score” but rather the “credit story.”
In light of the past economic climate there may be legitimate reasons for a poor credit history that have nothing to do with “bad character.” For example, the person who had medical bills that were fought by an insurance company and show as delinquent on the credit report, but have nothing to do with the individual’s willingness to pay debts can be dealt with by a letter of explanation from the client and kept in the loan file along with a copy of the credit report.
If the credit history is truly a result of poor judgment or bad credit management then the situation becomes much more difficult. Often a co-borrower with strong credit can help. Fully collateralizing the loan will probably be required. Starting small by borrowing against personal assets and repaying those small loans over time will help to re-establish the credit history as well.