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
In almost every type of business, insurance is as necessary as quality customer service. There are a wide variety of risks you take on when you operate a business, and you need to be insured against as many of them as possible to ensure your business doesn’t go under because of a simple mishap. When considering insurance plans, however, it’s important to remember that your personal credit score may be considered when your premium is calculated.
One criterion that insurers consider as they try to determine their risk exposure as it relates to a specific plan is the overall financial behavior of the individual (or business) applying for the plan. If you keep your personal debt to a minimum, always make your payments on time, and have a solid financial history, insurers see that as a clear sign that in the rest of your life, you are likely to participate in fewer risky activities that could result in a claim. So, to ensure you can afford adequate insurance coverage for your business, shore up your financial history before applying.
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 must free cash flow as possible. 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.