Q: I have a bad credit rating because one of my customers went under and put us in debt. Is there anything we can do to get a bank loan?
Jan 20 2010
Answered by: Clive Lewis Ask a question
You mention that you have a bad credit history (such as previously borrowing money and having difficulty paying it back). Running a business without a bank account is very difficult both in terms of receiving payments from customers by cheque or credit transfer or for making payments by cheque. Some banks offer basic bank accounts for credit-impaired people. The following banks say that they have products which will help businesses, but ultimately it will come down to individual cases whether the banks think you are a good risk or not:
• NatWest and RBS have a product available to entrepreneurs who have previously been unable to open a business account. It is called a Foundation Account and offers a cheque book, cash machine and Solo debit card, standing orders and direct debits.
• Abbey National (now Santander) offer an Instant Plus current account with a Visa debit card but no cheque book
• Halifax offers a cheque book and cash card
I have no experience of seeking a business bank account from any of these providers. If approaches to these are not successful, you may be able to get an account through a broker.
Do be aware that lenders to credit-impaired people usually offer worse terms than to people with good credit histories. If you apply to a number of sources, it may further damage your credit record. You must satisfy yourself that any product you consider is right for you.
Here are some further sources of finance which may be of assistance (although do not directly result in obtaining a business bank account).
There are grants available but usually for very specific purposes. The problem is finding whether your business qualifies for any of these grants. Many businesses start out seeking a grant but end up opting for a loan.
In the event that a normal loan from a bank is not an option the following alternative sources of finance and or grants might be possible:
Friends and/or family – a friend or family member particularly one with experience of running a business might be prepared to lend you the money. But you need to draw up a written agreement specifying when the loan will be repaid and any interest payable.
Many early stage business people use their credit card to fund expenses – items such as travel, stationery, petrol can be purchased on credit cards which, provided the debt is controlled, is a good way to fund the early stages of a business, although interest charges can be relatively high.
Another alternative is to join a Credit Union. The Association of British Credit Unions (ABCUL) website provides information regarding their members and their services. Some of the larger Credit Unions offer current account facilities. If you live in an area served by one of these credit unions, you might be able to avail yourself of their facilities. If you are able to save with a credit union (usually for a period of at least three months) you might then be able to access their lending facilities.
If you are between 18 and 30 and unemployed, the Prince’s Trust also offers loans of the last resort to people wanting to set up a business. They also offer help for people over 50 years old. An organisation called Prime also helps this age group wanting to start a business. The Prince’s Trust provides loans of up to £4,000 for a sole trader as well as grants up to £1,500.
Finally, there is advice on raising business finance through the businesslink.gov.uk website. For detailed help go to the Business Link website. Apart from offering advice on raising finance Business Link offer help with starting a business, as well as helping start-up businesses to access grants.
This is NOT individual financial advice under the Financial Services and Markets Act 2000.
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