Does a Business Loan Impact Your Personal Credit?
Business financing is full of challenges, especially if you are a new business owner. Startups have a harder time managing their finances and getting funds for their ventures. Sometimes businesses need loans to survive in the industry, and that is another challenge they need to take on. Getting a business is not as simple as it may seem to some people. Several factors determine whether you are eligible for a business loan or not, and if you are not considered eligible, you might want to consider other financing options.
Credit score plays an important role in determining whether you get a business loan or not. Money lenders check your credit score before giving you a loan because that is their way of finding out whether you are able to pay the loan back or not. You need to calculate the impact of credit score on loans to understand the importance of it. One question that we have come across quite a few times is whether or not a business loan impacts personal credit score. In this blog, we will answer that question in-depth for you.
When Does a Business Loan Affect Personal Credit?
There’s no doubt that a business loan has certain impacts on your personal credit, but it depends on the type of business loan you have. Different business loans have a different type of impact on your personal credit. Most of them affect your credit if you have taken a personal guarantee of a business account.
Most new business owners take loans on personal guarantees. This is very common among sole proprietors and partners; if the business is unable to repay the lender on time, they have the right to take the money from the business owner, and this will impact your personal golden credit score. Another case where a loan might affect your personal credit score is when you take a personal loan instead of a business loan to fund your business. Let’s say you have taken a home loan and invested the money in your business; its impact will reflect on your personal credit score because you have invested your personal loan in it.
Similarly, there are instances where a business loan won’t impact your personal credit, and the most effective way of doing that is by keeping your personal and business matters separate. If you have taken a business loan, you should make sure that you don’t take any personal guarantee and don’t involve your personal finances in it. This is the easiest way to ensure that your personal credit score is not affected even if you fail to maintain a good business credit score.
How to Build Good Business Credit?
Once you get your loan and a card, you need to start working on building good business credit. You will need to deal with many vendors for your business, so make sure you make transactions from this account frequently. If your account shows that you have paid for the goods on time and frequently, it will work as a positive in your favor. Ask your retailers to also make transactions to that account only so it stays active. You should also check your account’s status from time to time to find any errors. This will help you detect any inaccurate information or errors in transactions so you can resolve the matter before it’s late.
Can Personal Debts Affect Business Loans?
The simple answer to this question is yes, they do.
If you have too much personal debt, it will minimize your chances of getting a business loan. You need to have a good record for lenders to consider issuing you a business loan. If you are found to be a defaulter of your personal credit card, this will surely affect your chances of getting a loan.
The personal credit of a person is mostly checked when you are a new business owner. For experienced businesses, the lenders check their business’ transaction and credit history, but for startups, they don’t have enough material to rely on, so they check personal debts and credit score to determine their credibility. Hence, if you are a new business owner, you must calculate the impact of credit score on loans to ensure that you get the financing. Your credit history should be healthy, whether it’s personal or business, so start working on that.
Conclusion
If you are looking for suitable financing options for your business, visit 0Percent. They have multiple financing options for your new businesses that allow them to gain financial freedom. You don’t have to worry about your personal and business credit; their team will help you understand the financing options and choose the most suitable one for you. Contact them now and get the funding for your business that will help you reach new heights of success.
