Small business owners often turn to business credit cards or business loans for financial support. Doing so can be incredibly helpful and even necessary in getting businesses off the ground. Before applying for any kind of financing, however, it is important to understand how your personal credit can affect business credit.
Financial Liability and Risk Assessment
Your personal credit score is an indication of how well you manage your finances and how dependable you have been in repaying loans over time. A higher credit score demonstrates that you have a history of making payments on time for things like personal credit cards, home loans and car loans. Lenders evaluate your credit score when considering you for business credit options. A higher credit score will encourage them to offer a higher loan.
Bankruptcy and Fraud
If you have declared bankruptcy at any point in your life, you may have trouble finding financial support from lenders. Financial fraud is another item that will deter lenders from offering any kind of loan since doing so carries incredible risk and may result in legal trouble for the lender. Consider your financial history and be honest with any kind of bankruptcy or incidents of fraud. You may not be able to receive a loan from a major bank or lender, but there are other options available.
Types of Lenders
Even if you do not have a high credit score or have experienced financial trouble in the past, there are still options for finding business loans. Major banks may not be able to offer loans to those with low credit or to those who have declared bankruptcy, but alternative lenders can. Alternative lenders can offer cash advances or financial support similar to what you would receive from a traditional bank. Research can yield several of these options, and you can choose a lender that best fits your needs.
Payments and Financial Planning
Your personal credit is often a reflection of your financial habits and organization. If you have had trouble making payments on personal loans in the past, it could harm your future business credit options. When applying for a business loan, plan ahead and create a comprehensive plan for making payments in full and on time.
Your personal credit can influence the availability of business credit loans as well as the amount offered to you. Keeping good personal credit can benefit your business and help you get the loan you need.