How to get a start-up business loan with bad credit

You’ve got an idea. A great idea. It’s going to be the next big thing. But as you try to start up your start-up, you hit a snag: you need seed capital, and the banks won’t give it to you. Something about having ‘bad credit’.

Don’t despair: this is a common challenge entrepreneurs in New Zealand face and, with the right guidance, it can be overcome.

Here’s what you need to know.

Why am I being refused business finance?

First, let’s understand the problem you and your lenders are facing. The reason you are being refused finance for your start-up may simply be a case of having bad credit.

If you’ve ever borrowed money before, you’ve likely got a credit score. When you apply for a loan, the lender may check this credit score as part of your application. If you make regular repayments and don’t take out too much debt at once, your score may improve.

Read our guide on credit scores for more info.

Commercial credit scores do exist, but if you haven’t started a business before, you won’t have one of those yet. All the lender can do is take a look at your personal credit score.

You need to start a business to get a commercial credit score, but you need a commercial credit score to start a business! Here’s how to overcome that catch-22.

Getting start-up capital with bad credit

Option 1: Sell assets

If you have a car, a lot of equity in your home, stocks or shares or any other form of valuable asset, a simple solution to getting the capital you need is to sell them. However, it’s important to note that once they’re gone, they’re gone, and you won’t be able to use them as security.

Option 2: Put up more security

If poor personal credit is making you risky to finance, provide some security to make it easier for lenders to say yes. This is usually property but can be another valuable asset as well, depending on your lender.

Option 3: Pursue other forms of finance

There are lots of ways to get capital for a start-up without going through a lender first. You could explore whether angel investors, venture capitalists or crowdfunding platforms are right for you and your business.

Option 4: Use a guarantor

Lastly, if you don’t have great financials yourself, you can ask someone who does to act as a guarantor. This means they are responsible for fulfilling the terms of the loan if you don’t or can’t.

What’s next?

Once you’ve used this alternate source of capital to fund your start-up and successfully run it for a year or two, you’ll likely have solid enough commercial credit to be able to get funding through a lender. Because your commercial credit score takes precedence for business lending, those mistakes in the past won’t hold you back anymore!


For more information on getting funding for your start-up, get in touch with us on 0508 438 227 or make an online enquiry today.

This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact Avanti Finance or your financial adviser. Neither Avanti Finance nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any information, representation or omission, whether negligent or otherwise, contained in this publication. References to third-party websites are provided for your convenience only. Avanti Finance accepts no responsibility for the availability or content of such websites.

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