Corporations- How To Start A Business With Bad Credit

Possessing a bad credit history, is a very common hurdle
for individuals who wish to start and run their own
businesses. Unless you win the lottery, or have an
extremely rich relative, then you are going to have to be
able to retrieve a certain amount of capital startup funds.
The easiest and quickest way to retrieve capital startup
funds is through loans or lines of credit. This can be
very tricky for the individual who wants to start a
business with bad credit.

First, let’s take a look at starting a business as a
sole proprietor. The most common mistake for an
entrepreneur looking to start a business, is to establish
too much personal financial liability in connection with
the business debt. A sole proprietorship establishes the
absolute maximum liability on the business owner. All
business debts are the sole responsibility of the owner,
and any outstanding debts, if the business happens to fold,
affect the owner’s credit and finances directly.
Keep in mind, that 80% of small businesses fail within the
first five years according to numerous government reports.
Sole proprietors who have the business debt tied to their
personal finances, will be 100% liable, when those
businesses fold.

Next, let’s take a look at starting a business with a
partner. The second most common mistake an entrepreneur
looking to start a business makes, is in thinking that they
can lessen their liability by taking on a partner. This is
a very common myth, because if and when, they business may
fold, the personal finances of both partners suffer
equally. Yes, it is better to have two or more partners,
to shoulder the financial load, however, if the business
itself is the sole means of paying for all the financial
responsibilities, then whether there are two partners, or
fifty partners, whenever the business fails, then
everyone’s finances and credit suffer equally.

Now, let’s take a look at corporations. Ah yes,
there is a light at the end of the tunnel. What is a
corporation? A corporation is a continuous independent
entity which is created by an association of individuals,
under authority of law, which has independent powers and
liabilities from the members of its association. Okay,
that’s the dictionary definition, but in
laymen’s terms, a corporation is like another
individual, with another social security number, which can
file its own tax return, declare bankruptcy, and has all
the powers and liabilities of an independent business owner.

What this means, is that if the corporation fails, then the
individual who runs the corporation has absolutely no
liability whatsoever. A corporation simply dissolves into
thin air when it fails. In this way, an entrepreneur who
starts a corporation, has absolutely no personal financial
risk or liability. An entrepreneur can start multiple
corporations which may fail, without affecting their
personal credit or finances in a negative way.

Okay, so if I have bad credit, then how does starting a
corporation benefit me? Since a corporation is a new
entity, with a new social security number, then the
corporation has no bad credit. This means that the
corporation can now apply for loans, credit cards, and any
other type of credit. The individuals who run the
corporation may have terrible credit, however this has
absolutely nothing to do with whether or not the
corporation’s credit is good or bad. Many banks and
credit card companies, are much more willing to give
corporations higher credit limits, with much better terms,
than individual business owners. An entrepreneur with bad
credit can start a corporation, and receive credit based
upon the corporation’s credit history, without every
having their borrowing history checked. Many
entrepreneur’s with bad credit, have utilized the
corporation’s limits of liability and borrowing
potential, to attain massive amounts of startup capital to
fund business projects, which they themselves would have
never had the opportunity to fund otherwise.

The bottom line: if you have bad credit and no capital,
then start a business as a corporation. This will limit
your financial liability, and give you the opportunity to
attain capital based upon the corporation’s credit
history, not yours.

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Bryan Pringle, Ph.D., has written many articles on the
credit industry, and is the webmaster of websites offering
news and information regarding credit cards. For more
information about applying for credit cards, please visit:
http://www.apply-forcreditcards-online.com