Having a healthy financial history and a good business credit rating can open many doors for entrepreneurs. From getting unsecured lines of credit to growth capital and business finance options, it is important to make the right decisions to avoid falling into certain traps that can keep your business from getting access to the money it needs to grow and prosper.
Colleagues, friends, and family members will sometimes ask you to co-sign a loan because of your relationship with them, and because of your personal and professional financial history. While co-signing may seem like the right thing to do in order to help someone achieve their goals, keep in mind that you are putting your credit rating on the line. Cosigning a loan make you equally responsible for repaying the money in the agreement, so if the other party defaults, you assume the remainder of the debt. Your credit rating will then take a huge hit, because that debt does show up on your balance sheet, and will prevent you from being able to access business finance services until the loan is repaid in full. While your heart may be in the right place, cosigning on a loan is too risky for your business.
Having A Bank Account Charged Off
If you have ever had a checking account that held a negative balance for an extended period of time, the bank might have it “charged off” – meaning they close the account and report the negative balance. The same thing can happen with credit cards. The only difference is that, while an account that has been charged off may not show up on your credit report, it does negatively affect your business finance health rating because banks report negative balances to debit bureaus that collect on insufficient funds. There are agencies that can run detailed reports to see if there are any outstanding account of this nature that could potentially keep you from getting the business finance you need.
Credit Card Cash Advances
Using personal or business credit cards to take out cash advances can hurt your chances for business finance approval in both the short and long term. The reason for this is that credit card companies typically charge up to 5% upfront on each credit card advance, plus they have a higher APR on cash advances than regular purchases. These numbers can add up quickly, and you could find your lines of credit maxed and you credit score taking a hit.
Using Personal Cards For Business Finance
Many new business owners will use their personal credit card to make business purchases. This can do harm on two fronts. First, personal credit cards have lower spending limits than business lines of credit, and making business purchases can out your personal finances in jeopardy. Second, by using personal credit cards, you are keeping your business finance rating from growing. Even if you only buy filters for the office coffee machine and put them on a business credit card, and then pay the bill on or ahead of time, our business credit score will increase – and a higher credit score means that you can get access to better business finance solutions to take your company to the next level.