Conventional wisdom dictates that if you own or run a business, you need to work as hard as you can to keep personal matters, including finances, separate from business matters. In fact, in many matters, this purposeful separation is required by law. It seems counterintuitive, then, that your personal credit score would matter at all when you’re trying to run a business. However, it does.
Here are just a few ways you can expect to be helped (or hindered) by your personal credit score in business settings:
Looking for a Loan
Unless you have a large amount of upfront capital, you’re probably going to need a business loan at some point. If your business has been in existence for some time, the lending institution will have hard data to consider and may be able to make a decision solely based on the business’s data.
If your business is relatively new, however, the lending institution still needs data to make its decision, and this data often comes from your personal credit history. Factors such as on-time payments, personal debt, and overall credit score will almost certainly be considered during the business loan application process. So if you’ve personally taken out loans from BlueTrustLoans or other online lenders, it’s imperative you pay them back on time and in full. The consequences of a poor personal track record with loans will be an inability to borrow for your business in the future.
Make the Right Call
Quality communication is at the core of every successful business. One of the ways this communication takes place is through the use of business-funded mobile phones. If you plan to operate a phone plan under a business account, it’s important that you take a look at your credit history before applying.
Since post-paid phone plans are approved, in part, due to your creditworthiness, your personal credit history may impact the types of phone plans you will be approved for. If you need a plan with multiple lines and large amounts of data, you’ll be far more likely to be approved if you have a solid financial history.
Insuring Against the Unknown
Insurance is a crucial aspect of safeguarding a business’s financial health. Businesses face various risks, and having comprehensive insurance coverage can protect them from potential financial losses. When seeking insurance coverage, from LLC Insurers or other providers, it’s essential to recognize that your personal credit score may come into play during the underwriting process. Insurers use a range of factors to assess their risk when offering coverage, and your financial behavior and credit history are among these considerations.
Maintaining a strong personal credit score is advantageous not only for securing insurance but also for demonstrating your financial responsibility in various aspects of life. A good credit score signifies that you manage your financial obligations well, which can lead insurers to perceive you as a lower-risk applicant. Lower risk often translates to more favorable insurance premiums. To ensure your business can access affordable and adequate insurance coverage, it’s wise to prioritize good financial practices, such as minimizing personal debt, consistently making on-time payments, and establishing a solid financial history. This demonstrates your commitment to responsible financial management and can improve your prospects when applying for business insurance.
Preparing for the Future
As you start down the road of owning your own business, it’s important to do everything you can to set your business up for success for the long haul. Of course, one of the best ways to set your business up for success is to have as much free cash flow as possible which sensitivity analysis can help to guarantee going forward. One great way to free up cash is to limit the interest you pay on debt such as credit cards, mortgages, and other debt-accruing instruments.
This saved interest becomes cash that you can invest back into your business, further increasing its strength. Since things are likely to be tight as you start your business, anyway, any money you can free up will make a significant impact. Work hard to make success happen, then, by getting your personal finances in order before starting down the business road.