A poor personal credit score is bad for business. Here’s why.
If you want your business to succeed, you’ve got to be able to seize all the opportunities that come your way. This is especially important when it comes to growing your business. Unfortunately, when it comes to funding, I see lots of people who are being held back by their personal credit scores. It is vitally important to get this right.
If you think that your personal credit score has nothing to do with your business, you’re very wrong. Yes, there are loads of ways to find business finance. But what happens if these aren’t an option for you?
Your personal credit score is an important factor in determining your ability to secure financing and to conduct business operations. A credit score is a numerical representation of your creditworthiness. It is used by lenders, suppliers, and other stakeholders to assess the level of risk involved in extending credit to you or your business.
5 reasons your personal credit score is important to your business
1. to secure financing
If you have a poor personal credit score, it may be difficult to secure financing or obtain favourable terms from lenders. This can be particularly challenging for small businesses or startups. This is because small businesses and startups often have limited resources and need to rely on loans to fund their operations.
2. to have good business relationships with suppliers and vendors
Your personal credit score can also affect your business relationships with suppliers and vendors. If you have a poor credit score, suppliers may be hesitant to extend credit terms. Another possibility is that they may require upfront payment for goods and services. This can impact your cash flow and hinder your ability to operate and grow your business.
3. To keep up a good reputation
Moreover, a poor personal credit score can have a negative impact on your business reputation. If you are seen as a high-risk borrower, this can erode trust with your customers and business partners. It may affect your ability to secure future business opportunities.
There are lots of reasons why more traditional business loans might not work for you. For example, you might not have enough of a history for the major lenders to back you. Another reason might be that your turnover or margins are too low to make repayment terms work.
You don’t just have to consider ‘business finance’ options when looking for funding. If you’re serious about making your business a success, you have to be prepared to look at all routes to getting there! This could mean leveraging your personal credit in order to do it. Hence why your credit history has to be in order.
Personal loans can often work out to be cheaper than getting a specific business loan. But without a good credit score, it’s just not going to happen.
What can you do?
The most important thing you can do is to make sure you know exactly what the score is (no pun intended!). If you’ve never thought about checking your personal credit score – now’s the time to start. There are plenty of websites you can use to check your credit score and what it’s saying about you. I personally use www.creditexpert.co.uk. It has a nominal monthly fee and is worth every penny. (No, they aren’t paying me a commission for this!)
There might be incorrect information on file that’s holding you back from getting credit. Credit Expert can help you identify this and show you other things that you can do to improve your credit rating. Improving your rating should mean that you have a much wider range of options open to you when you do need finance. This type of service is the best place to start if you’re even remotely thinking about funding.
excuses won’t get you anywhere
It’s no good saying you don’t want your personal credit mixed up in your business. Yes, there’s a risk if things go wrong. But even if you take out a business loan as opposed to a personal loan, it is near impossible in today’s market to find an SME lender who will not demand personal guarantees from the owners or directors. If you aren’t prepared to take the risk, then why should a lender?!
If you don’t believe you can make a success of your business, you shouldn’t even be thinking about borrowing money to fund it! You have to 100% COMMIT to it. That might look like taking out a credit card to give you access to the funds you need. If you’re not even backing yourself enough to make that happen, it’s going to ring alarm bells for any other funders too.
Take control of the situation
Taking control of your situation and having a clear understanding of what your credit profile looks like can save you from wasting your time making credit applications that are bound to be declined. Be aware that having loads of different searches on your record worsens your credit score and hampers your chances of being approved for a loan.
Even if you aren’t actually looking for a business loan right now, getting your personal finances in order is important to your business success. Many investors and other interested parties will often want to understand the personal credit situations of the business owners or directors they are involved with. If you run a shabby ship at home, the chances are those problems and mentality will filter into your business too. Get it right NOW, before it’s too late!
If you need any business consultancy or advice, please reach out and let’s chat about a business coaching option for you.
