Can You Start A Business When Your Personally in Debt?

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You might think that since it takes a lot of working capital and sufficient cash flow to keep a business running for years, starting one up when you’re personally in debt is impossible. Well that’s not entirely true as some entrepreneurs over the years have started businesses even when they were in debt and overcame hardship to be successful. It’s possible for you to start a business even if you’re in debt if you find a way to pay off your debt and consider the following options.


Take An Extra Job Or Side Hustle Either As A New Business Or To Build Savings

Sometimes you need to save up some of your own capital for your new business by working extra, or even starting your business as an odd job. It can take a little patience to do this, but if you can’t use a credit card or home equity loan to fund your business, this may be the way to go. You might be able to run your own business as a part-time gig for starters, and then as you start making sales and getting more customers you can consider running it full-time. You may want to look into local business grant programs as well.


Find Investors for Your Business

Sometimes angel investors or other venture capitalists are willing to invest in new businesses if they feel they can get a return on that investment. They may pour their own funds into your business, or they may have good enough credit to be able to obtain a business loan. Even if you can’t find a local investor interested in your business, you may be able to reach out to family or friends who may be willing to do it. Family members who have had backgrounds in starting or running a business can also offer advice on decision making that can be important down the road.


Finding Alternative Financing

There are other ways to get loans or financing options for your business that don’t have the same requirements as regular bank loans. These lenders can look at other options for secured or unsecured financing by looking at your current income, doing alternative credit checks, and evaluating other credit signals. Some forms of alternative financing include merchant cash advances, which are not actually loans but are purchases of credit card sales that are repaid each time your business makes a future credit card sale. Other times you might be able to use smaller peer-to-peer or microloans that are easier to pay back. Be mindful that online short term loans are intended for personal use only, but may help cover an unexpected emergency expense if the bulk of your savings is tied up in your business.


Crowdfund Your Business

Crowdfunding a business is a little bit of a different animal than most other financing mechanisms. Instead of having one investor with deep pockets or a big bank that can give you hundreds of thousands of dollars in funding, crowdfunding comes from hundreds of thousands of people who may be considered investors or just donors. With crowdfunding you have to consider what kind of rewards you’re offering all your small investors who are contributing to your business. Are you going to offer a slice of the ownership to them similarly to when a company issues stock? Or will they get other benefits such as certain free products or VIP customer membership? Crowdfunding can allow you to appeal to a broader base of investors and have more flexibility in fundraising, but you do need to have a solid strategy for implementing it.

The bottom line is there are so many other ways to finance a business startup than through loans that require you to have minimal debt and a high FICO score. You just need to research which way would work best for your business endeavors.


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