How to start a business after debt
Entrepreneur and debt expert William Berry says a poor credit history shouldn’t stop you starting a business
It can't be denied that getting into debt problems has a debilitating effect on your finances and your morale but it doesn't mean you have to give up your entrepreneurial endeavours.
In fact your in-depth understanding of how your finances can easily go off-track could be seen as the perfect base from which to build a business.
The average UK household has £8,761 of debt, and that's before you throw in, often substantial, mortgage debts. According to charity Credit Action the first 50 days of every working year are spent paying interest on debt.
So it’s not a surprise that more people are falling into debt problems, with ‘bankruptcy-lite’ debt order reliefs rising 7% since 2011 to a record level, according to The Insolvency Service.
The good news is that the number of people declaring themselves bankrupt in England and Wales has fallen 8.7% since 2011.
Life after debt
Just because you have been dragged through a debt management plan or amassed a poor credit rating, it doesn't mean you have to put your dream of being your own boss on the back burner.
I'm not going to pretend it's easy but it is certainly not beyond the realms of reality to set up your own business with a poor credit rating.
Your business idea may blow everyone out of the water but the fact that you have bad debts puts an undeniable black mark against your name. But don’t be disheartened, there are ways to get your idea off the ground.
You will probably start the process of setting up your company at the bank to try and get a business bank account.
You have a better chance of getting the bank on board if you provide a comprehensive business plan to prove that your past credit failings will not be repeated in the future.
Having a business partner with a good credit score can help sway the banks opinion of you in your favour.
If the bank flat-out refuses to allow you a bank account and you are planning on starting an online business then you have the option of using online payment methods such as PayPal to work round the problem.
Securing finance after debt
Once you’ve started the business and have a bank account in place, don’t think your credit history will count you out when it comes to securing further funds. There are always options.
Bank loans: Some businesses are naturally more involved than others and you may require extra funding or a start-up loan. Again, a comprehensive business plan is essential for selling your idea to the bank and trying to get it on board.
The current economic climate isn’t ideal for sweet-talking banks into giving you money so having the backing of an investor could help show your business idea is sound.
Angel investors: Independent investors could also be a rich source of finance if the banks aren’t an avenue that is open to you and investors will also give you honest feedback on your business idea, which could help you hone just what it is you plan to do.
Grants: Don’t forget about business grants and community lending either from the government or your local authority and even charities. Often this can be a rich source of finance if you are prepared to take the time to search out the initiatives.
Crowdfunding: And finally you can take to the internet to find investors through crowd-sourcing websites, or more appropriate crowdfunding sites when a number of people put up a small amount of money to help a start-up business.
A bad credit score does make it more difficult to obtain credit of course but as long as you are prepared to work hard and learn from your past money mistakes then you can make a success of a new venture.
William Berry is a serial entrepreneur and in 2006 was named a Young Gun by Growing Business. He is the founder-director of accommodationforstudents.com, and Vincentbond.com. William is also CEO of the new video start up p6.com, based in California.