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Why Business Credit Can’t Exist Without Personal Credit

Posted: 9th January 2018 11:42

In a nutshell, all new lines of business credit have to be secured with some type of collateral. If you are going to be in the roofing industry, you might be able to get some business loans based on the fact that you have a few commercial trucks that you’re willing to sign over to the bank in case you default. Unfortunately, the vast majority of startup business owners don’t have a fleet of commercial vehicles or a whole lot of cash that they can use to keep their companies flush. So, personal lines of credit or a signature loan is usually what small business owners use when they’re just starting out. How does this relate to business credit? Well, you can’t get business credit unless your personal credit history is in perfect working order.

Which Is More Important?

Although you have to meet minimum personal credit requirements in order to get approved for a business loan, banks don’t make it just that easy. First, you need a legitimate and verifiable business. Expect to supply two years of tax returns, as well as your business bank account records. Have a polished copy of your business plan on hand so that lenders can tell if your business is a sure-fire money maker or just a hobby that you’ve been lucky enough to break even on. All in all, business and personal credit are pretty much even, at least in the beginning.

How to Get Your Personal Credit Rating Up Fast

Since you need a fair personal credit rating to even think about being approved on the business side of things, you should work to boost it, even if you think it’s good enough. First, having a higher personal credit rating will enable you to get better interest rates. Next, having better personal credit will also get you approved for higher tier financial products. In other words, if you’re looking to get approved for loans above $50,000, your personal credit file has to be commendable. Boost your personal credit score faster by taking care of collections, making all your monthly payments on time and reducing your personal debts.

When Will Your Business Credit Score Stand Up On Its Own?

It could take between two and five years before lenders start paying their attention to your business credit. Unfortunately, your personal credit is still going to play a role when it comes to refinancing, credit cards, and new loan originations. So, a good plan is to always ensure that your personal credit is good. Either that or get ready to pay a lot more in interest and have fewer options when you’re attempting to get money from the bank to help run your company.

Major corporations with established business credit work differently than small businesses. The same goes for limited liability companies and even S-corps. As long as you are in business for yourself, there’s going to be a way to get the line of business credit you need - personal credit notwithstanding.