Many beginning entrepreneurs often times wonder whether their personal credit scores will affect their businesses. In other words, will having a great credit score make it easier for you to secure a low-interest business loan? Will having a poor credit score make it harder for you to get a line of credit for your business?
There isn’t a simple answer to this question because it largely depends on how you establish your business and how you organize your money.
Establishing a Corporate Line of Credit Creates Separation
Your credit rating doesn’t have to affect your business’s success. That’s good news for business owners who have low credit scores.
Taking advantage of this, however, means that you need to establish an independent line of credit for your company. Depending on the lender you borrow from, this could take several months or years.
You need to get a credit card registered in your business’s name. If you already have one, then make sure that you pay all debts on time. Even just a few late payments could make it much harder for your business to get a loan without having to pay hefty interest rates.
The longer your business has its own separate accounts, the more distance there will be between yourself and the company. That’s a good thing for people who don’t want to rely on their own credit ratings when applying for business loan.
Never Let Your Personal and Business Finances Interact
Once you have separate accounts, you need to make sure that you draw a clear line between your personal assets and your business assets. Never use your personal credit card to buy something for your business. Also, you should never use your business’s line of credit for personal purchases.
If you cross this line, then you could possibly create confusion that lenders can use to turn down your business loan application. A close look at your finances shows that your personal money is intertwined with your business’s money. That gives lenders free reign to look at your personal credit history when deciding whether to loan your business money.
What if You Want Your Personal Credit History to Count
If you have an exceptional credit rating, then you may want lenders to consider it before giving your business a loan. Your rating could make the application more appealing, which should encourage lenders to give you loans with low interest rates.
This is a tricky situation. If you were a new businessperson, then you could easily use your credit rating to get a business loan. Unfortunately, that isn’t the case. You are someone who has managed a business for at least a few months or years. At this point in your career, you have probably already separated your personal and business accounts.
If you haven’t separated your accounts, then you should definitely mention your high credit score when applying for a business loan. In this case, most lenders will use your personal credit history to make sure you are responsible enough to receive a low-interest loan.
Realistically, experienced entrepreneurs have already drawn a clear line between their personal and business lives. Don’t let this dissuade you from using your excellent credit to get a better deal. Your business loan application might not have a space for your personal credit score, but that doesn’t mean you can’t mention it to gain favor with lenders. Even if lenders don’t officially refer to your credit score, they may give you some leeway because they know you are financially responsible.
You have plenty of options when it comes to borrowing money for an existing business. Depending on the specific situation, your personal credit history could matter a lot when you apply for a business loan. With some planning, you can use this to your advantage. Remember, though, that you should only mention your credit score if it’s good enough to really matter.