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Question added to topic MoneyMarch 16, 2010

How do I secure a line of credit for my business if my personal credit is poor?

I'm currently funding my three-year-old business with personal funds. I need some working capital for upcoming project and marketing. Do you have any suggestions?
As I've said before, as tough as your situation may seem, you still have some options. But let's first discuss funding your business with personal capital since it is a very important topic.

I'm not sure what type of legal entity you have in place, but generally speaking you want to make sure the accounting and banking of your personal funds are kept separate from your business, especially if you own an LLC, C-Corp, S-Corp, etc.

If there is a clear distinction between yourself and the business entity, there is less likelihood for you to be personally liable for the debts of the business. Now, it is fine to contribute capital to the business, but just be sure to separate yourself from your business from a legal and accounting perspective.

In terms of poor credit, there may be ways in which you can improve your credit standing. Depending on the type of debt you have, you could contact your credit card issuer, the credit bureaus and your personal banker to find out exactly what is hurting your credit standing.

If you have a high credit card balance (over 35 percent of your credit limit) and frequently miss monthly payments then that is the first area to address. But, contact these agencies and organizations to find out exactly what is hurting your credit standing and what you can do to improve it.

If you need a quick fix in obtaining financing then there are a few options for you to consider as detailed below.

Option 1: Seek a Strategic Partnership
This can be a tough decision to make but it is an option worth exploring if you can find a company that compliments your business. You mentioned that you have projects in the pipeline but don't have the cash to make it happen. If you can find a partner that has a strong balance sheet (i.e. cash) and a complimentary business model, perhaps you can form a partnership.

Now, there are a lot of questions you must ask yourself in figuring out the right partner, such as:

1. Would a partnership help both companies financially?
2. Do the two companies have cultures that are compatible?
3. Am I comfortable giving up certain management functions to this partner?

Option 2: Seek Financial Investors
If all you need is cash, then perhaps you can raise capital by partnering with an investor who will just provide funding and take an ownership position in the company. Again, you will have to give up some ownership, but you will also have the ability to grow with fresh capital.

Option 3: Seek Further Financing Options with Banks
While your credit is poor, you may still have some opportunities to obtain financing with a bank. You may have to go to several regional and community banks to find a lender but you may find one with some suitable financing terms. The Small business Administration also sometimes offers attractive opportunities to obtain financing.

So, while your situation is tough, I believe you still have options to explore. You may just have to think a little out of the box.

Ryan Himmel, CPA and registered securities analyst, is the founder and CEO of BIDaWIZ.com, a professional network for small businesses and entrepreneurs to obtain trusted advice and services from a team of CPAs, Enrolled Agents, Financial Planners & Tax Attorneys.  His team provides answers to the many finance and tax questions that small businesses encounter every day. Ryan has been quoted in The Wall Street Journal, Forbes, Fox Business and Crain's New York, among other publications. Ryan also regularly contributes to the community with his finance and tax blog.

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