Personal Credit and Your Small Business

The relationship between an entrepreneur and their commercial enterprise can be a complicated one. One the one hand it is your livelihood and your creation. On the other it is a vampire that sucks up away your time, money, sweat and tears. Beyond any mixed feelings you may have about the business enterprise, the line between an proprietor’s personal finances and those of the business enterprise can be a very slight one as well.

Will missing that student loan payment a few years ago hurt your chances of getting a loan now?

I have seen a lot of questions like that one, about how a small business owner’s personal credit can touch your business and contrariwise. It’s a complicated question, with two possible answers . The uncomplicated one is that if you have bad personal credit, there is no way you ‘re getting a business loan from a bank. The great news is that there is a more complicated answer ; there are other choices and ways to get the financing you need.

If your credit score is low, say below 640 you will probably have trouble getting a loan from a bank. Because the model banks depository financial institutions use to lend is largely dependent on your credit score and history of making payments on time, they will consider you a high risk, regardless of situation. Their model of making money depends on bigger, regular payments, so your past history of payments are crucial to most banks. Assuming you are lucky enough to qualify for the small business loan application, it’s likely that the terms of the loan will be expensive.

If you have already been refused for a loan because of your credit score, your next step should be the SBA . They will guarantee loans for some barrowers who have been rejected , which will help comfort the nerves of the banks.

If neither of these choices are available it’s time to try some more creative business financing.

One choice is to try and repair your personal credit. This will be the best long term strategy , but it can take years to fulfill. Blemishes will stay on your record for up to ten years, and it can take months of perfect payments to raise your score. These are all necessary steps you should be taking, however, most people will find that they need a near term resolution.

Revenue based loaning is likely the best option for most poor credit borrowers. Revenue based lending is estimated based on the company’s typical revenues. Put differently, repayment is forecast based on what the business has made in the past and will likely be able to afford to pay for the working capital over the next few months.

Because of this theoretical account , credit score is less of import. If you are likely to still have trouble qualifying for this small business loan application, you may consider a merchant advance. Merchant advances are based on the revenue your company makes from credit card sales, and are repaid automatically as you make sales. Because of this, merchant advance companies can lend to business enterprise owners with personal credit as low as 500.

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