Credit for Your Small Business?

As you can imagine, I get a lot of questions surrounding how small businesses – new or established – can secure credit or funding. 

There’s a lot of ways to answer that question, and there’s a lot of challenges. 

Personally?  I’m a fan of the “bootstrap” method, because I didn’t – and really don’t – want to give up some degree of control of my business.  Yes, I know that an SBA (small Business Administration) loan isn’t relinquishing control of my company as I would if I took on investors, but you get the idea. 

There’s three basic ways you can fund your business, so let’s talk about them…

  • Personal Funding.  This is the classic, and still the most popular.  Like the name suggests, you’re using your personal money to get this business launched and funded, and no matter what, you are the one who will either win or lose.  There’s a lot of ways this can be done, from breaking open retirement accounts (and the ensuing penalties) to a second mortgage on your home or a personal loan.  In the end?  Unless you have access to a lot of easily liquidated assets or cash, you’re going to pay a lot for this money in interest and/or taxes, even if it is “yours.” 
  • Credit Cards.  A lot of people would lump credit cards into personal funding, but I don’t think that’s really fair.  There is a way to use credit cards to fund the first few months of a new business relatively inexpensively, but it requires a lot of discipline and can easily backfire, especially if your credit isn’t great.  Basically, it goes like this… You’ll get 2 or 3 new credit cards, with equally high credit lines and a 6-12 month grace period of zero or low interest rates.  ALL the business funding is paid for on the first card, and then, the second card is used to pay all those bills as they come due.  You guessed it, the third card is then used to “float” the balance one more time, before the grace period ends and the interest rates rise. 

You guessed it – taking to long to build your business income to the point your can cover the debt – and pay it off before the high interest rates begin to demolish your profits makes this a high-risk tactic, but you could say ALL small business is high risk, right? 

  • Small business loans.  Most of these could originate from the SBA, but plenty of other entities can provide financial assistance to new businesses.  In my experience, they can be great tools, but usually require above-average personal credit and a fairly traditional field of business.  A mechanic opening his own shop with a 730 credit score has a great chance of getting this type of loan, but the digital marketer with a 650 is going to face an uphill battle.  It’s worth noting many of these loans are done on a personal guarantee.  So, win or lose, you’ll be paying them back. 

I’ve intentionally left out things like “angel investors” and “friends and family” because those can get messy really quickly.  When you take Uncle Olaf’s money, or Frank the Investor’s, you need to set very clear expectations on who controls those expenses, and how you’re going to repay it.  Far too often, those conversations don’t take place, and if you’re not willing to have these hard conversations, then you’d better avoid financing your business like this. 

I hope this gives you some ideas, and more importantly, if you’re trying to determine the best way to fund a new business, we can likely help you to sort out the smartest strategy. 

Let’s talk soon,


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