It’s no secret that starting and running a business requires a significant chunk of cash. And, unless you happen to be the heir to a family fortune, you will probably find yourself in need of some sort of funding. Most new businesses are in the same boat, but it’s important to understand that in order to get these types of funds, your personal credit is going to be one of the most important factors.
You’re probably thinking, “if I am applying for a small business loan under the name of my company, why are they looking at my personal credit?”. In this article, we’ll take a look at why lenders are checking your personal credit, why having good personal credit is important as a business, the benefits of having good credit, and what business financial solutions are out there that don’t look at your personal credit.
Why Are Lenders Looking At Your Personal Credit For a Small Business Loan?
When applying for a business loan of any kind, most lenders will start by asking a lot of information from you. This information will include your current financial situation, your proposed business expenses, your repayment plan, assets you can use as collateral, and your personal credit history.
The most important thing for money lenders of any form is to rest assured that they will get their money back in a timely manner, without having to chase or harass you. Your personal credit score is a great indicator of your punctuality, trustworthiness, and credibility when it comes to paying back money that you’ve borrowed from banks and credit card companies.
A good credit score is a green light for business lenders because it lets them know that you haven’t had any problems in the past when it comes to paying back borrowed cash, so they most likely don’t have to worry about it either. If you have multiple derogatory marks on your credit report, it’s a red flag that they will surely have questions about.
Why Is Personal Credit Important For Your Business?
When you are looking to finance a new business, restock inventory, upgrade your equipment, increase your staff, or just need a bit more capital to keep things moving, you will most likely need a business loan to get you by.
As mentioned above, your personal credit does play a part in how quickly and easily you are approved for a loan. So, even if you are running all company operations under the name of your business, you are the one going to the lenders to ask for funding, therefore, you are the one they will be checking into to see that their money is in good hands.
What Are Some Business Benefits of Having Good Credit?
Aside from obviously qualifying for a loan much more easily, there are some other benefits of having good personal credit when it comes to your business.
For example, the terms and conditions for your small business loan are set by the lender after meeting you and looking into all the details about your business and your personal financial life. Having good credit gives you much higher chances of receiving better loan terms such as lower interest rates and fees, longer repayment periods, lower penalties, and other special conditions that may apply to your personal situation.
You will also be more likely to have less of a drastic personal guarantee with an already-pristine personal credit score. Many lenders require some kind of personal asset to use as collateral which, if something goes wrong, could potentially devastate your own personal finances. A good credit score will more than likely deter business lenders from asking for big, scary collateral assets from you.
Can You Still Finance Your Business Without Having Good Credit?
The short answer is yes.
Of course, having a good personal credit score is really important for both your business needs and personal life. However, there are still options to finance your business without having an amazing personal credit score.
There are business funding solutions that have different ways of scoring you that don’t factor in your personal credit. Revenued is a private equity fund that specializes in financial services. The company believes that all businesses should have access to cash flow, no matter the personal credit score of the individual.
Applying is completely free!!
Good Personal Credit is Important, But There are Other Solutions
It’s definitely a good thing to have a good personal credit score, as it will help you immensely in your business endeavors. However, you don’t have to let a subpar credit score stop you from achieving your business goals.
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