Entering into a business partnership can be an exciting venture, promising growth, shared responsibilities, and the pooling of resources. However, it can also present challenges, especially if your business partner has bad credit. Poor credit can affect your ability to secure financing, negotiate leases, and build business credibility. Here’s what you can do if you find yourself in this situation.
Transfer or Adjust Ownership Percentages
One practical approach is to restructure the ownership arrangement within your business. Financial institutions often require credit information from anyone who owns 20% or more of the business. A partner with bad credit might hinder your ability to secure funding.
Consider the following solutions:
- Transfer Ownership: Your partner might sell their ownership stake to you or another trusted person, such as a third partner.
- Adjust Roles: Your partner could become an employee or contractor instead of an owner. Compensation could be tied to performance or other metrics, allowing them to earn like an owner without the title. They might have the option to buy back their shares in the future if their credit improves.
Build Business Credit
Developing strong business credit can reduce reliance on the owners’ personal credit scores. Lenders may be more lenient if your business demonstrates good credit history.
Here are steps to build business credit:
Open a Business Credit File: Register your business with credit bureaus.
Establish Credit History: Open accounts with vendors, suppliers, or lenders who report to credit bureaus.
- Ensure Timely Payments: Pay all business-related bills and debts on time.
- Monitor Credit Reports: Regularly check your business credit reports for accuracy and improvements.
Alternative Financing Options
It’s possible to secure a loan even if your business partner has bad credit by exploring alternative lenders. Unlike traditional banks with strict eligibility standards, alternative lenders often have more flexible requirements, focusing on factors like time in business and annual revenue rather than credit scores.
While almost all lenders conduct some type of credit check, alternative lenders can provide viable options for small businesses with less-than-perfect credit.
Alternative Funding Options We Offer
At Getty Advance, we understand that securing traditional bank loans can be challenging. That’s why we offer a variety of alternative funding options designed to meet the unique needs of small businesses. Our flexible solutions ensure you have access to the capital you need to grow and succeed. Here are the alternative funding options we provide:
- Small Business Loan: You don’t need years in business or perfect credit for approval. Approvals happen in hours, with minimal paperwork.
- Line of Credit: Only pay interest on the funds you use, making it an affordable option. Provides constant access to capital for unexpected needs.
- Working Capital Advance: Gain fast access to capital based on future sales. Repay with a fixed percentage of your weekly deposits.
Dealing with a business partner who has bad credit requires careful planning and proactive measures. By understanding the impact, exploring alternative financing options, and working together to improve credit scores, you can overcome these challenges. Remember, the key is to approach the situation with a strategic mindset, focusing on solutions and long-term improvements.
