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Do investors look at the credit reports of business owners? The reason I ask is my business partner has bad credit since his divorce plus a DUI.

The short answer to your question is, probably. But your partner’s bad credit history and unfortunate lack of good judgment (hopefully only once) does not have to limit your company’s ability to secure debt or equity on favorable terms.

Here is what you can count on when raising funds from angel or venture capital fund investors. The greater amount of money you seek, the more likely that someone will eventually get around to conducting personal background checks on the company’s founders and key executives. Notice the word “eventually.” Background checks are typically conducted in the final round of due diligence, not during the early days of evaluating the investment potential of a company.

My recommendation is to disclose the information about the credit history and DUI to prospective investors before they find it. Let your partner explain the circumstances in a forthright way. This does not need to be a part of first presentations to prospective investors, however do not hide it when investors are trying to get to know the founders over beer or dinner.

Lastly, don’t be surprised if investors ask to change the title of your partner to non-officer status. DUIs are felonies. As an officer of a company, felonies require disclosure on certain types of federal contractor, federal grant, and SBA-backed bank loan applications.

Your partner should not fight this request provided that he or she is able to maintain an equity stake in the company.

Everyone makes mistakes. The trick is to not make the same mistakes again, which is all investors really want to hear.

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