There is no question about it, being able to get a business loan, and on reasonable terms, can make or break your ability to start a small business and have it thrive in the future. That’s why the state of your personal finances can be so critical to your business loan prospects. This reality begs the question in that how does your personal credit impact your business loan prospects, and what can you do about it?
Impacting Business Loan Prospects
This is a common question and source of confusion. After all, we’re dealing with a business, not a personal line of credit. Does your personal line of credit really impact your business? The answer is yes, absolutely. The reason for this is simple enough in that a startup business will have no history or track record of success. As such, a lending institution will look to a person’s line of credit in order to determine whether or not they are a viable financial risk. As such, your personal credit matters.
However, just how much it matters may depend on a variety of factors. Some loan programs, like loan guarantees from the Small Business Administration, will take your personal credit score into account at a much higher level than a private investor might. Shorter-term loans will often be more forgiving of a lower credit score, but you will likely need to have some business cashflow or collateral in order to obtain this type of loan.
Rehabilitating Your Personal Credit Score
Sometimes, you can acquire a personal loan that can result in debt consolidation. This can be hugely beneficial to your finances, as it can enable you to ultimately lower your payments, reduce your interest rate, and pay off your debt, faster. Fortunately, acquiring such a loan is usually relatively easy, and there are many websites that will allow you to find a loan that fits your personal financial situation quickly. With a minimal amount of effort, you can get your personal finances in a much better situation. This, in turn, will improve your credit score, and increase your chances of obtaining a highly competitive or desirable business loan. However, keep this in mind that this is a long-term solution. It is not something you will able to do instantly. Generally speaking, this is the case for most credit improvement efforts.
Other Options to Improve Your Credit
Maintaining a strong personal credit history is critical to your ability to take on a solid business loan that will not find you digging yourself out of a hole to start. That’s why it is so important to do whatever you can to improve your credit. The most obvious thing to do is to pay your debts on time and minimize your overall credit use whenever possible. However, there are other ideas. These include:
- Dispute credit report errors and attempt to get them resolved or struck from your record
- Asking for increases on your credit limit in order to improve your credit utilization ratio
- Writing a goodwill letter to have a debt forgiven
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