I’ve been around long enough to hear just about everything, and I’m often surprised by the stuff that small business people believe about starting and running a small business. Much of this stuff is negative and causes people to believe that they can’t start or run their businesses effectively. So, I’ve decided to take on some of these myths. Over the next few weeks or so, I’ll present some small business myths and the facts to disprove them.
My husband is a big fan of those “myth buster” guys on the Discovery Channel who go after cherished myths on such subject as dinosaurs, global warming, and how to survive if you’re lost in the jungle, which I guess is kind of what this series is about.
Myth 1: You need great credit to get a small business loan.
Myth Buster: You certainly don’t need a stellar credit rating to get a small business loan. Just as you don’t need great credit to get a loan for anything. A small business startup loan really is a personal loan, since there is tiny or no actual collateral, either in the form of physical assets (like equipment) or business cash flow. So the bank is lending primarily on your personal characteristics, including your credit rating. If you don’t have great credit, it doesn’t mean you will be certain to get the loan, and if you have bad credit, it doesn’t mean you’ll certainly be turned down.
But, having good credit certainly helps get you that business loan. It helps because the higher your credit rating, the lower the interest rate on your startup loan. If your credit rating is low enough, it might possibly be denied credit by major banks and credit unions. You can still find money for your small business startup from other lending institutions, at higher interest rates, or you might need to go to other more creative financing sources.
When you go to the bank to ask for a small business startup loan, the first thing the bank do is pull your credit score, to see what kind of financial track record you have. Don’t let the bank do this; instead, present them with your credit report that you have already thoughtfully brought with you, including FICO score. This keeps you from having lots of hits on your credit rating. You can get a free credit score before you go to the bank by going to Annual Credit Report. Pay the additional money to get your FICO score. If your credit is bad, work hard to mend your credit rating. Check the dispute resolution process of one of the credit reporting bureaus to learn how to do this.
So the myth that you have to have great credit to get a small business startup loan is busted. If you’ve poor credit, you can still find funding; you’ll just have to work harder and pay more in interest to get it.
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