Can you start a business with debts?
- Jeanine Hoekstra
- How to
- 22 Mar 2021
- Edited 19 Dec 2022
- 5 min
Do you want to start a business, but are you worried about existing debts? Not all debts will mean you have to postpone your plans. Do you have problematic debts? Learn about financial support from your municipality, loans from a credit bank, and how a debt counsellor can help you.
Assess your debts and consider the options
The majority of people in the Netherlands have some type of debt. Common examples are student loans or a mortgage. But even an instalment contract for a mobile phone or a private car lease are types of debt. All debts are recorded by the National Credit Register (‘Bureau Krediet Registratie’, BKR) and can be seen in your BKR credit report.
Debts are not a problem when you can afford the repayments. Research by Statistics Netherlands (in Dutch), however, shows that around 650,000 Dutch households have problematic debts. That means they find it difficult to pay off their debts and their situation can quickly worsen due to high interest rates. Starting a business with problematic debts is difficult.
There are usually costs and investments when you start a new business. If you have debts, regular banks may be reluctant to lend you money due to the extra risk. In many cases, taking care of your debts will be the first step in your entrepreneurial journey.
These are the most common options for starting a business if you are in debt:
- Ask for help from your municipality
- Find help on your own
- Apply for funding
Ask for help from the municipality
If you have no income and no savings to fund a new business, contact your local municipality about help and financial support. This is regulated under the Decree on Social Assistance to the Self-Employed (‘Besluit bijstandverlening zelfstandigen’, Bbz).
“Problematic debts do stand in the way,” explains Hans Heyer, an advisor to self-employed professionals at the municipality of Groningen. Unless you get permission from the supervisory judge, starting a business is not allowed if you are in the middle of debt restructuring (‘Wet schuldsanering natuurlijke personen’, Wsnp).
“If you are in the final months of debt restructuring, we may want to start preparations for the Bbz application. The basic principle, however, is that you need to solve your problematic debts before you can make use of the Bbz.”
Debt assistance from your municipality
When you ask for help from your municipality, you will be assigned a counsellor who will try to make agreements with your creditors. This is called an amicable settlement*. If you cannot reach a payment agreement, the municipality may decide to pay off your debts. A municipal credit bank (‘gemeentelijke kredietbank’) is a social institution that will grant you a so-called restructuring loan. This loan must be repaid within 3 years.
The advantage of a restructuring loan is that the payments reflect what you can afford to pay. The loan is often combined with income management. This means your income is paid directly into the credit bank’s account. The bank pays your fixed costs.
Are you debt-free? Apply for the Bbz
Starting entrepreneurs who have solved their debt – with or without a counsellor – can take part in their municipality’s preparation programme. Heyer: “You get professional help to start your business. For example, to create a business plan and do market research*.” You continue to receive any benefits you are entitled to during this programme. You do not have to apply for jobs while following the programme.
You need a business plan* to apply for the Bbz. This must show that your business is viable. The municipality may work with a consultancy firm to assess the business plan.
The Bbz can supplement your income for up to 36 months. The municipality decides the payment amount and how long you will receive it. You can also borrow a sum to start your business. Ask your municipality for more information, as the conditions of the loan depend on your situation. Heyer warns: “This is only for working capital. You cannot use a municipal loan to refinance another debt.”
Find help on your own
Contact a debt counsellor if you need help to solve your debt problems. Jeannette Meersma, a debt counsellor with Kram & Meersma, frequently meets clients with plans to start a business. “Ambitious young people who have student debt or a history of expensive smartphones. Or others with debts who want to start a business and be self-employed,” she says.
Meersma first makes an overview of their debts. Which can they get rid of? Which not? And how soon? Meersma: “We can restructure debts and then make payment arrangements with creditors. For example, the Dutch Tax and Customs Administration.” If creditors refuse to cooperate in an arrangement without good reason, the courts can force them to do so. This is called a compulsory settlement.
Coaching for entrepreneurs
Apart from helping to clear debts, a debt relief expert can also coach you in starting up your business. Meersma: “We always make a budget: an overview of your income and expenditure. Do you have debts? Does your business idea have a good revenue model? If so, we coach you in the best way to handle your finances.”
According to Meersma, debts do not always mean that you have to delay your business plans. “Your BKR credit report shows your payment behaviour. If you meet your payment agreements, that can have a positive effect.” Of course, some banks will not let you open a business bank account* if you have debts. “But you can make business transactions on your private account,” she adds.
For some business services, such as the iDEAL online payment method, you do need a business account. Were you rejected by your bank? Try another. Not all banks check your BKR credit report when you apply for a business account without credit.
Do you need help? A list of debt relief counsellors can be found on the NVVK website (in Dutch). This is the industry association for debt assistance and social banking.
Apply for funding
Regular banks do not usually provide financing for business plans when you are in debt. There are, however, other ways to get financing. Consider crowdfunding or borrowing money from family or friends*. Many starting businesses also turn to Qredits. “Even when starting a business with old debts,” explains operational director Roy Spit. “We encounter it quite often. It is often too risky for banks to lend money to these entrepreneurs. It usually involves relatively small amounts and it costs banks too much time to assess the applications. It is not profitable. Bankruptcy is a no-go in the Netherlands. At least for regular banks.”
Qredits is a non-profit foundation. It works with various banks and the Ministry of Social Affairs and Employment. “Our job is to give people a second chance,” explains Spit. That does not mean you can simply approach Qredits to ask for financing for your business. “Our advisors assess all applications. We did a lot of video calling during the corona crisis, but for risky applications, we always visit the business premises in person.”
Have you ever been declared bankrupt? Then the advisor will pay close attention to the bankruptcy report. “Are there signs of serious negligence or fraud? Were you to blame for anything? We want to see how you handled the bankruptcy. And what you will do to prevent it from happening again. In some situations the business owner could not do anything about it. We look at such an application and see if it is possible to grant a loan.”
Borrowing from a credit bank
If you need a loan to start your business, you can also go to a credit bank that is affiliated with Social Banks Netherlands (select the language in the top-right menu). These banks are social organisations that work with municipalities. Their focus is on helping people with financial problems. They look closely at your situation to decide if you can receive a loan.
Be honest about your debts
“Be honest about your debts,” is Spit’s most important advice to entrepreneurs with debts. “You can submit a fantastic business plan, but if you do not mention your debts, you are immediately marked down.” He notes that business owners often think they can cover things up. “But we see everything.”
Instead, approach it as follows: “Do your research. Ask to see what is in your BKR credit report. It would be great to see a business plan with a BKR report attached. Then the applicant can explain why debts exist and show what they are doing to resolve them. Call your creditors and agree on a payment schedule in advance.”
As well as its strict assessment of financing applications, Qredits helps entrepreneurs to avoid future debt problems. Spit: “Our research shows that people who have completed debt restructuring (Wsnp) are more likely to get into trouble again.” That is why the foundation works with 650 coaches who assist entrepreneurs for up to a year after starting their business.