When an entrepreneur launches a startup company, about the only thing he or she has an abundance of is passion; a passion for their idea, for their company, a passion to succeed, and a passion for the future. To paraphrase what Perry White said about Clark Kent in the first Superman movie, “They have gobs of passion, they have tons of passion.”
What they don’t very much of have is . . . well, anything else.
Startups have shoestring budgets, backyard offices, dorm room spaciousness, and basement warehouses – if they have that much.
Oh yes, another thing startups usually don’t have very much of is a credit history. Any credit history, or credit, a startup has to come from the owner, who may or may not have much of either.
The financial health of most startups is more theoretical than actual. The chances of getting a business loan to pay for expansion or production is as nebulous as their cash flow. Everyone always tells them to come back after they’ve got a few satisfied customers, some solid sales figures. They get a lot of sympathy for their financial straits but not much else.
Because of this reality, one of the most oft-repeated pieces of advice for new entrepreneurs launching a company is not to quit their day job. You’re going to need money coming in from somewhere to pay for everything and that old job you’re desperately trying to get away from may be the lifeline that will keep you from going under before you even get started.
You do need to establish a line of credit though. Every successful business needs to borrow money from time to time, and they usually need it quickly. Banks are accustomed to dealing with businesses but they also understand how often new businesses go under. This leads them to look askance at a company with low or non-existent credit scores.
TransUnion, Equifax, and Experian are the three credit bureaus that banks look to judge your creditworthiness. Those bureaus, in turn, look to your history of loan payments at the banks to compile a score reflecting your creditworthiness that the banks can use to judge your creditworthiness.
If this sounds like a classic Catch-22, it is. There is, however, a way out of the vicious cycle.
Payday loans, also known as bad-credit loans, same-day loans, or short-term loans are an effective, albeit expensive way out of the credit cycle. What you need to understand is that lenders who deal in these types of loans have to follow all the same federal regulations as normal banks and credit unions.
They have to fully disclose all the costs, interest charges, and fees associated with your loan. They have to tell you up front what all the costs will be over the lifetime of the loan, when the payments are due, any penalties for late payments, etc. They have to give it all to you in writing before you sign the loan documents – just like a normal bank.
Also, just like a normal bank, when you’ve paid off your loan they report your payment history to the credit bureaus. Most short-term loans like this are small, in the $500-$1000 range so the overall impact will be minimal at first. Nonetheless, every time you take out one of these payday loans for your startup, you’re creating more credit history for it.
The more history you create, the better your credit score starts to look. Eventually, you’ll reach the point where normal banks will notice that your startup company has a good credit score, and they’ll start giving you the serious business loans you need to succeed.
Where To Go
Like all lenders, NeedMoneyNow makes their money by charging interest and fees when they loan money to borrowers. However, as you might suspect, they face a risk of higher rates of borrower defaults than regular banks and credit unions. They lose money when a borrower defaults so they have to make it up by charging higher interest rates and adding extra fees.
For example, a typical payday loan might be $500, repayable within a few weeks. The total amount, with the interest and fees, will usually be over $700. That’s quite a bit extra, but if you don’t spend the loan money and simply use it to pay itself back, along with the interest and fees, the money out of your pocket will be minimal. The resulting credit score for your startup will be worth it.