How to Start a Small Business Without Credit

There are four ways to start a small business, especially one you run out of your home.

  1. You can invest your savings
  2. You can borrow money
  3. You can seek investors
  4. You can negotiate payments in advance
A picture of a cafe ready for business.
There are ways to fund a small business even when you don’t have good credit.

Most people don’t have much in savings or good enough credit to qualify for a small business loan. So you either have to find investors, who will want a share in your business decisions (not always a bad thing), or you’ll have to settle on negotiating payments in advance.

If you need to bootstrap your business from advance orders then your first customers should be people who know and trust you. It helps if you have earned their trust by doing things for them on a promise before and delivering on that promise.

Your friends and relatives can be investors or customers. If you have a large enough social circle then it may be better to make them customers. They will be more understanding about your goals and purchasing your goods or services may be more affordable for them than making investments.

Here are three simple rules you should follow when starting a business by selling to people who know you.

Set Reasonable Deadlines

Allow yourself extra time to deliver the goods and services. Do NOT try to create value by offering quick turnaround. Maybe you can do that but as your business picks up people will expect you to maintain the quick turnaround times and you won’t be able to deliver on that promise.

Only promise what you can deliver when you have more customers than you need and you’re working full-time at your business. There is no going back once you have angered your friends and family by falling behind on orders.

Set Reasonable Prices

Do NOT discount those first sales. It may seem like a great idea for starting a business but in fact people will stop buying from you as your raise your prices. You need to sell your goods and services at a business-sustaining price.

That may mean you cannot sell to your best friend, in which case you may want to bring him or her into your business as a partner. You’ll both be able to contribute more to a sustainable business than either of you can contribute to a business doomed to failure by setting its prices too low.

A common mistake for many new businesses is that they set their prices below market expectations. Raising those prices later is not as easy as you will want it to be.

Do Not Spend Your Business Income On Yourself

If you are selling things to make ends meet you don’t have a business; you have a limited timeframe in which to sell off some of your assets.

A business has to be able to reinvest its earnings, at least until you reach a point where you can afford to pay yourself while putting money back into the business.

Too many new business owners immediately try to take money out of the business without reinvesting in it. You need to pay for equipment, supplies, advertising, rent, taxes, and maybe even raw goods before you can think about giving yourself any money.

You CAN Start a Small Business Without Credit

You can sell your goods and services in advance and start your business on its road to success. This strategy may not be ideal for everyone but if people know you and trust you they will be more willing to pay in advance for high quality work.

Earning that trust is very important but keeping it will sustain your business for as long as you want to be involved with it.