Although it’s common knowledge that a bad credit rating can cause havoc with personal finances, many entrepreneurs don’t realize that their personal financial situation can also have an effect on their ability to borrow money for funding their business. Despite the fact that personal and business credit ratings are two separate things, it’s important to be aware of the fact that your personal financial history can have more of an impact on your business than you may realize. This is especially true for entrepreneurs who are applying for business loans, since banks and other lenders are likely to weigh up your personal credit history throughout the application process to get a better idea of how responsible you are when it comes to managing money. Here are some of the main ways that your credit rating can affect your business.
#1. Problems with Getting Loans:
Although a business loan is for the purpose of setting up and running a company rather than for covering personal expenses, it’s important to bear in mind that if a bank or lender does not deem your credit score to be good enough, then you may be rejected outright when it comes to applying for a business loan. This is especially true since banks begun significantly cutting back on the amount that they lend in the form of business loans, compared to just ten years ago. As a result, many first-time entrepreneurs are considering alternative lenders instead.
#2. Utilities, Inventory, and Supply:
Bear in mind that it’s not just banks and lenders who may be concerned with your credit score when starting a business. For example, if you’re going to be running your company out of an office, then you’ll likely need to sign up for utilities such as broadband and telephone, water, and electricity – all of which are provided by companies that may require you to undergo a personal credit check before you can open an account in your name. Although you’re less likely to get rejected, you may find yourself incurring additional costs in the form of deposits when getting started.
#3. Bad Credit Can Get in the Way:
A poor credit history could get in the way of your ability to start your own business, particularly if you are still in debt and need to pay it off. Since one of the biggest obstacles that small businesses today face is being able to get together enough capital to pay for start-up costs, several personal financial commitments in the form of debt repayments can prevent you from investing any of your own money in your company.
#4. What You Can Do:
Before starting your business, it’s a wise idea to invest time, effort and money into rebuilding your credit score to make things easier for yourself in the future. Since bad credit can prevent you from realizing your entrepreneurial dreams, it’s best to tackle this issue first and head on. A credit repair company can give you tailored advice on what to do to improve your credit rating, and the best way to start is by paying off as much debt as you can.
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