Too many entrepreneurs who put everything they have into a startup do so without making the best possible plan to build their new company’s credit. That’s not to say that they don’t make a plan.
It’s just that the relationship between personal and business finances is complicated, but the core issue is simple: While you do want to keep business and personal finances separate, the business will not have credit of its own to use to secure loans for a while.
Unpacking the Relationship
The first thing to understand about using your personal credit to help establish business credit is that the goal is to separate them. The second thing is to know that the way your personal credit will be considered is going to be different in a business loan than it is in a personal loan.
These two facts are important because all of the ways that your personal credit is used to help your business need to take them into consideration. Since companies are considered their own entities, lending institutions take their ability to earn into account.
This means taking into account the habits and history of the person running the business, but it does not mean that you need perfect credit to get business loans.
Since the business plan and assets will be used for collateral, your personal credit will mostly be used to determine factors like the interest rate and repayment terms. Because these factors can affect your company’s cash flow quite a bit, it’s important to control them.
Planning for Your First Loan Application
The best thing you can do to help your business get approved for credit so that it can build its own credit history is to get your personal credit score as high as possible. This is obviously going to be a strategy that has a wide range of results, but there are a few steps everyone can take.
The goal is to get your number over 660 if possible. One way to do that is to make sure that your utilities and services like your cell phone plan are reporting to major credit bureaus. If they are not, you can request it.
Making sure that you have adequate insurance coverage and that the premiums are being paid on time will also help build your personal credit in a few ways.
On top of making payments regularly and being able to have that reported to the credit bureaus, risk management demonstrates to creditors that you are responsible about ensuring that your debts will be paid under all circumstances.
Evaluating your current coverage is important, but it is best done with the help of a professional. To see a list of agents who can help answer questions about your coverage, click here.
Getting the Ball Rolling
When you have done everything you can for your personal credit, then the next step is to get that initial line of credit for your business.
You will also want to take some extra steps to keep building your new company’s credit, like getting it a credit card that you can use and pay down intermittently, putting its utilities in its name, and establishing vendor credit.
Before you know it, your business credit will be growing on its own alongside the rest of your company.
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