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. Entrepreneurs who apply for business loans will notice this more than others. Banks and other lenders will likely look at your personal credit history during the application process. This helps them to gauge how responsible you are with money management. Here are some ways your credit rating can have an impact on your business.
#1. Problems in 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 because banks have significantly reduced the amount of loans they offer in business loans over the past ten years. Many first-time entrepreneurs now look into alternative lenders.
#2. How Much Are You Spending on Business Expenditures Monthly?
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. What is Your Company’s Lifestyle?
Your credit score could be a hindrance to your ability start your own business. This is especially true if you are in debt or need to repay it. One of the most difficult obstacles for small businesses is getting sufficient capital to pay start-up expenses. However, debt repayments and other financial obligations can make it impossible to invest in your business.
#4. Check the Annual Fees
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. You can get tailored advice from a credit repair company on how to improve your credit rating. The best way to begin is to pay off as much debt as possible.