How to open a business with a bad credit rating?

There are not many reasons why you would not be allowed to open a business, and you’ll usually know if any of them apply to you – for example, if you’ve been disqualified as a company director in the past.

A bad credit rating in itself doesn’t mean you can’t start a business, but it might make things harder. You’ll struggle to get a business loan, so you might have to raise your starting capital in other ways.

You might also struggle to get a full business bank account, especially if you are the sole proprietor of the business or if the account comes with an overdraft or other lending like a credit card.

But that doesn’t stop you from opening a business at all – so if you think your idea will be the Next Big Thing, don’t let a poor credit rating hold you back.

Structuring your business

Your business structure might have an impact on how closely your personal credit rating affects your company’s finances, especially if you register as a sole trader, for obvious reasons.

If you register as a limited company and you are the sole director, then again your personal credit rating might be called into account when lenders assess your company.

A third option is to create a partnership, if you have someone you trust to go into business with you. In this case, lenders will still likely check your credit record, but you may have better leverage if your business partner has an excellent credit rating in their own right.

Do you need any business borrowing?

A credit rating should only be an issue if you need to borrow money, so naturally by avoiding credit, you can avoid anyone even checking your credit rating.

This is easier said than done though. Although you might not need a development loan or anything like that, it can actually limit your choice of accounts if you don’t want to take out a business credit card or even a business bank account with an overdraft.

Because overdrafts, credit cards and loans are all forms of credit, a particularly bad credit rating will probably mean you get rejected for any of these, so be aware of the full range of impacts your credit score might have.

Paying suppliers

It’s not just the banks who might check your credit score – suppliers are likely to do so too, if you ask them to provide you with goods or services and let you pay for them later.

A bad credit score might force you into cash on delivery contracts, or even paying in advance for some professional services, and that all eats into your cash flow and available capital, so again, be aware of this and plan for the impact it might have.

Setting up a business with a credit score of its own can help to reduce the negative impact of your personal credit rating – which might make you a borderline case for some suppliers – so try to offer them their preferred method of payment, for example by setting up Direct Debits so they can collect money from your account.

Get a bad credit business account

One solution to all of the above is a bad credit business account – or a no debt business account, if you prefer to think of it that way – that does not come with an overdraft or credit card, and so does not need a background credit check.

The Arro Business Account is just such an option. You deposit funds into the account – either yourself or via direct payments from customers – and can then spend from that positive balance.

It gives you access to Faster Payments and crucially, Direct Debits, so if suppliers demand that you use that method to pay them, you can.

You also get a professional-looking Business MasterCard® debit card, so you can still make card payments and purchases, as well as cash machine withdrawals, without need for a credit card.

But because there’s no overdraft or credit card, there’s no need for a credit rating assessment when you apply for an Arro Business Account – and you still get guaranteed approval (subject to our basic Fair Fit test) no matter what your credit rating is.

To apply, just fill in our three-minute signup page – we just need your name, age, UK trading address and contact details – and you could have an Arro Business Account up and running in minutes.