Are you a new small business owner? If so, you might have considered borrowing money for your startup or expansion. However, you must know that your personal credit score can affect your eligibility for a business loan.
That’s why we have discussed below the different impacts of having a poor personal credit score on your small business to help you understand this aspect and ensure you’ll start on the right foot.
A Poor Personal Credit Score Affects Business Loan
The first and most apparent impact your personal credit score has on your small business is its influence on your business loan. When starting up or running a business, there will be a time that you’ll need to apply for a business loan.
It can be for additional funds for starting up your small business or a loan to finance an expansion or purchase of additional equipment. Before applying, you must know that business loan providers will examine your business and personal credit scores when deciding whether to approve your application or not.
Therefore, a bad personal credit score will definitely influence the terms of your business loan or if you’ll be approved for one. However, having a poor score on your personal credit history shouldn’t prevent you from pursuing loans, both personal and business.
You must know that loans such as no credit check personal loans have been made available for individuals with bad credit scores on their records. The same goes for business loans. However, lenders may have different rates and policies about it.
When choosing a loan provider, it’s highly advised to compare rates and other features of the loan offered, especially if you are applying for a bad credit loan. It will help you choose the ideal loan product that will give you a suitable rate that benefits you.
Supplier Won’t Trust Your Business
Aside from having a hard time getting a low-interest business loan, another thing you will need to watch out for if you have a bad personal credit score is the supplier’s trust in you and your business.
A poor credit score is an indication of how you manage your finances. Keep in mind that the major factors affecting your credit score are:
- Total debt usage
- Payment history
- Available credit usage
- Credit mix
- New credit
- Length of credit history
Credit scores result from the analysis and prediction of credit bureaus on how you will repay your debts. Credit bureaus’ factors in analyzing your credit score depend on how well you manage your financial behavior.
As a result, the supplier will become hesitant to transact with you. They might consider doing business with you but won’t give you a line of credit and only consider you paying cash upfront.
Meanwhile, if you have good personal and business credit scores, the supplier will give you a line of credit you can use in buying their products while paying it on an installment basis or with a one-time payment on a specified schedule.
This opportunity will help you start your business without worrying about where to get money to purchase your initial inventory.
You’ll Have A Hard Time Setting Up Your Utilities
Another thing that you find challenging to do when starting up a small business with a poor personal credit score is when you apply for utilities. Your business needs utilities to operate, such as electricity, water, gas, internet, and phone.
The utility companies will look into how you pay your utilities in the past. It can be for another business or your home. You must know that applying for utility services is applying for credit, and having a poor credit score is an indication of being a risk for the provider.
As a result, utility companies might ask for a deposit before they approve your application. Some might require you to submit a guarantee letter signed by someone who agrees to pay your bills in case you fail to do so.
How you pay your utility bills will also reflect on your credit score. Your credit score will improve if you have been paying your bills on time and in full. But if otherwise, expect that your credit score will also decline.
Investors And Potential Partners Would Be Hesitant
If you’re starting a small business, you might consider looking for an investor or a partner. However, having a bad credit score will make it difficult to land a partnership and find an investor for your business.
Lack of capital is one of the reasons why businesses can’t strive. Some might not be able to operate since there will still be many things that need to be done that require money. That said, a business owner’s only resort is to acquire a loan or get an investor or a business partner willing to spend money for the business startup.
However, having a bad personal credit score can hinder you from seeking assistance with the mentioned option because no one would trust you with money anymore, given your credit score. Remember that your credit score determines how trustworthy you are when it comes to money.
It demonstrates how well or poorly you manage finances in your personal life and how you will manage your business money.
Improve Your Personal Credit Score
With all the above-mentioned effects of your personal credit score on your small business, it’s highly advised that you improve your credit score.
To do this, you must pay all your financial obligations on time and in full. You must also ensure that you are utilizing less debts than your income. Be mindful of your finances because it can affect your personal life, career, and business.