Starting a business with a loan gives the advantage of having a good amount of capital at the early start. It means more items and services are available to purchase and bring the business further forward from the competitors.
Personal vs. business credit
Before requesting a loan to a creditor, a business initiator should know the consequences of mixing personal credit with business credit. Doing so may have its benefits, but in the long run, separating both is wiser.
A personal credit score gets evaluated through a person’s financial liability. In time payment of a mortgage, automobile loan, and credit card debt generate an excellent pattern of fiscal responsibility, and it can give a good credit score to get more credit later.
If you use personal credit score to get a business credit, all the charges get recorded to your account. Suppose your business goes well and generate stable income, the downside to mixing business with a personal loan is that you use up your credit limit. For example, with the same collateral, i.e., house, car, etc.; personal credit will get you a limited amount of money because the grantor assumes the loan is for personal use. Business loan, on the other hand, facilitates a capital that addresses the short-term and long-term goals of your company. The financial burden compensates with your business’ annual expense. Besides, by not mixing up personal credit with business credit, you can still have a forgiving credit score if the worst happens to your business.
Building a good business credit
Proper personal credit affects your credibility to receive business credit. Here are some tips to avoid poor financial profile:
Make a credit card instead of debit card
A debit card is safe for you, but it does not prove anything of how you can manage your balance if given a debt. Credit card shows the otherwise, but only if you pay the charge before the deadline.
Limit your credit card
The ability to control the limit of your expense proves that you are financially responsible. Having a credit card with limit won’t allow you to purchase the over-limit goods.
Avoid unstable account
Do not open a new account with a hope that you can cover up your former bad financial record. Instead, pay your debt and recover your credit score.
Strategies to deal with unmanageable debt
The worst situation of starting a business with a loan is that you may get entangled with debts. There are few ways to resolve this problem through debt consolidation loan. But bear in mind that the purpose of the loan is to make the existing debts more possible to pay.
If your credit score is weak and you get rejected by banks, you can try getting your debt consolidation loan from services that provide loans for people with bad credit. The interest is higher than regular service since the risk for you is also high.
There is debt consolidation loan service that comes with low interest but normally requires your property to serve as the guarantee. Therefore, if your business loan is a high-risk loan, make sure you have more than one asset that can save you just in case a financial disaster happens.…Read More