You’ve always dreamed of being your own boss. You have a great business idea, and you’re ready to make the leap into entrepreneurship. There’s only one catch: you’re in personal debt.
That doesn’t mean you can’t pursue your business dreams. But it will take some planning, creative thinking, and even a bit of sacrifice on your part.
Get Out of Debt
Whether you need a loan right away to invest in equipment, space, and inventory, or you think you might need a capital injection down the road to scale, at some point, you’re likely to need a loan.
Getting out of debt yourself may make it easier to secure a business loan to get you started. It will also help improve your cash flow and help you invest more in your business without relying on borrowed money. If you’re not sure how to start, find professional debt help such as non-profit credit counselling services. They can help you eliminate interest payments and get you out of debt sooner.
Once you are debt-free, you can focus on starting your entrepreneurial dreams.
Banks and other traditional lenders generally want significant collateral before issuing a business loan, usually worth at least as much as the loan. Starting your own venture is a big risk, and the odds of failure make lenders nervous.
The most valuable asset many people have is home equity. Lenders tend to base the size of their loan on the value of the collateral available. This can be a risky move for yourself. If your business plans don’t pan out the way you had hoped, you could be jeopardizing your home.
If there are other, less-essential assets available, turn to them first.
Use Revenue-Based Lenders
Revenue-based lenders, sometimes called subprime lenders, will put less stock in your personal debt or business assets than they will in your business cash flow and personal income. The downside to revenue-based lenders is that they can be more expensive, but it can be easier to secure a loan.
: Because they do take into account personal revenue, they will also look at your credit score, so again, if you’re in considerable debt or in bad credit, you will want to take some steps to get out before applying. Some suggest if you have a bad credit score, you can check the best small business loans for bad credit to finance your business.
Make a Plan for Borrowed Money
When you borrow money for your business, you better have a plan that makes the most out of every dollar. You should have a detailed plan for where all your funds are going that you can present to the lender. Don’t plan to borrow more than you need.
When you present this plan to the lender, you may have a better chance of getting the loan despite your personal debts. A strong business case and a plan for the funds go a long way.
It’s not impossible to pursue your business dreams when you have personal debt. However, if you’re deeply in debt, it may not be the best idea. By taking steps to become debt-free now, you will not only put yourself in a stronger position, but you’ll also be better able to focus on your goals.