It’s a common misconception that as an entrepreneur you must have an endless supply of money lying around. It’s only then that you can keep creating new companies right? Wrong actually. There are many times where you might find yourself in a tiff in terms of personal credit and money. However, this doesn’t mean that there are no ways to finance your start-up. There are various ways and options to finance and gain angel investors with bad credit. Let’s see how one can finance their start-ups with bad credit.
Take a hard look at your credit to look for any errors
Now if you have a bad credit line, taking out a loan is what most people will opt for. However, before submitting the loan application, you must make sure that you check your credit score. Understand how it will impact the regularity by which you will pay back the loan. Business advisors often ask their clients to do this because it helps with not just setting realistic standards but also checking to see if any errors would have been made. There are many times where credit reports show some sort of mistake. Sometimes, these mistakes are very big and can hugely impact the way you may approach financing your business through banks, angel investors, venture capitalists etc.
Taking loans means you must have some form of collateral or security. You must assess what kind of physical assets you have and are willing to put up as collateral. As a business advisor myself, I’ve often advised my clients to make sure they undertake proper assessment because collateral is an integral step in gaining a loan. It helps increase your chances of securing one as well.
Move away from banks and credit loans
It’s rightly said that angel investors invest in the company regardless of what your personal credit looks like. Angel investors or venture capitalists look at the profitability of the start-up and not the individual. Thus, they must be able to place their faith in you in regards to the money they are investing. So even though some may go ahead and invest in your start-up, some will choose not to. Because it’s not a risk they are willing to take. So it does become an uphill battle when a business owner has a bad credit score. It can sometimes allude to the fact that they may not know money handling techniques. Most of the times, it scares investors away.
Go the family route
When you are in a tough spot financially, family is there to help. Many times for newly formed start-ups, relatives become the first angel investors for the business. Mostly, business owners secure funding from their family and relatives because they want to see you succeed. As such if they believe in the product or service you sell, they will likely invest in it. They don’t look too much at credit scores at that point because they trust you with their money. More importantly they trust you as a family member.
About Devansh Lakhani
Director of Lakhani Financial Services and a Chartered Accountant helps in start-ups funding India from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. Being a business plan consultant he has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.