Starting a business when you are in debt


We all know this is the age of the entrepreneur. There are new business startups going live every week, and the digital economy has provided unprecedented opportunities. That’s all positive news, but this could equally be described as the age of easy credit and escalating debt. Credit card debt, student loans, store cards – most of us have a little personal debt. And some of us have a lot. The question is how does personal debt affect your aspirations towards starting up in business on your own? Let’s find out.

What is your starting point?

The fact that you are asking the question at all suggests that you probably have debt that runs to four or five figures – or maybe more. How serious a problem your debt might be for your new business aspirations depends on how much you owe, whether you are currently making the payments OK and how much income and savings you currently have.

In other words, to find out more about the debt management solutions you might need to put in place, you really need to sit down with a professional who does this for a living. They will be able to take you through different options such as refinancing, debt management plans and IVAs.

A business needs money

Whatever people say about low barriers to entry and start up costs being reduced in the digital age, any business still needs some funding to get it off the ground. There are more options open than there have ever been, and your personal debt can be a deciding factor in choosing the most appropriate source.

A business loan from a bank is the most common and simple solution for raising funds. Of course, they will look closely at your personal credit history, and if your credit rating is poor, they will probably show you the door.

There are other fish in the sea – some lenders specialize in dealing with poor credit ratings, as there are many, many people in the same boat. Naturally enough, they take a risk-based approach, meaning that if they are taking a chance on you, they want something back in terms of higher interest rates.

Alternative funding

In many cases, alternative funding options work better when your credit score is less than perfect. These include crowdfunding, peer to peer lending, working with angel investors or even seeking help and backing from family and friends.

The key to making a success of any of these is to treat each option with the same level of professionalism, in terms of creating your business plan and demonstrating why this is a sound investment. Angel investors are no fools, so if you treat every option, even your family, with the same attitude, you can’t go wrong.

Potential stumbling blocks

The other point to keep in mind is any impact that solving your personal finances might have on your ability to launch a business. A debt management plan or even an IVA is fine, for example, but if you opt for a debt relief order or you file for bankruptcy, it will affect your ability to establish or direct a company.

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