Many people believe that their personal credit does not affect their business, the underlying reasoning being that personal credit is just personal. However, this is a big misconception, and it would do you a great deal of good to know it can adversely affect your business. It is crucial to have a good personal credit history and an impressive score, and your business will thank you for that. Having your finances in a mess can hurt you and your business, and here are some reasons why:
Getting loans will be hard or impossible
The inability to get loans is the most obvious and main reason why having bad personal credit is harmful to your business. You may have failed to pay debts and bills on time, have a lot of debt compared to your income, or have failed to pay your bills altogether, thus damaging your credit score. With a poor credit rating, you cannot obtain credit cards, loans, or other credit products when you need them.
Loans are one of the main ways to finance a business, so when you cannot get them, running your business may prove to be difficult. What about resorting to alternative sources of finances? Well, that may be an option, and you may need to seek refundable or non-repayable funds from friends, relatives, and other entities who will not check your personal credit score. But the challenge is that these are hard to come by.
Most lenders who can be of help will normally consider your score and will seek to scrutinize your personal and business bank accounts for the past 6 or so months. They do so to determine the lending risk depending on the consistency of deposits into your accounts.
Non-approval of your leases, business accounts, and more
Do you know landlords or property leasing companies check your score before approving your lease or tenancy application? Are you aware telephone and utility companies consider your score before installing their utilities? If you have ever had your application turned down for renting an apartment, getting telephone installation, and others, it could be due to your poor score.
In the same way, a poor credit score can make you miss out on renting business premises or office space, or acquiring telephone services for your business. Even leasing equipment may prove difficult. But does this mean you will never start or operate a business due to poor credit? Absolutely not. Fortunately, you can work with some companies who are experts in rebuilding bad credit, and thus improve your credit score. You need not look further than Boostcredit101 for such assistance, and in a few months you will be smiling and getting those loans, leases, telephone installation, and other things approved like crazy.
Your wages/income may be garnished
If you have defaulted paying your bills and debts as per your agreement with the lenders or service providers, your account could be turned over to a debt collector or a collection agency. Unfortunately, besides reporting your poor credit handling habits and thus hurting your score, they could choose to sue you, too. With such happenings, the collector may also try to get part of your income to pay the outstanding amounts—hence garnishing your income.
However, garnishing wages is not allowed in some states, and may be difficult for the self-employed. For example, it is not applicable to freelancers. However, if you get a paycheck, creditors/lenders or their agents may try to get a chunk of your income.
The garnishing of your wages or income from side businesses or jobs may make achieving your financial goals hard. The reason for this is that wages or income play a crucial role in improving your business and meeting your needs.
Deprive your peace of mind
You cannot be productive and in a position to make sound decisions when stressed, right? That is what being neck-deep in debt or facing a financial crisis at a personal level does to your business. Also, the incessant worry over your personal finances will ruin your sleep, thus making you fatigued and unable to run the business. Moreover, you may make poor judgments and decisions, for example using the business as collateral for a loan, or even lending yourself business money. If it is a partnership, such things may not go well with other partners and may lead to a break up or loss of trust.
Your personal credit and finances are crucial for the success of your business. It is vital to handle your personal credit responsibly and ensure a healthy credit score—not just for yourself, but for your business as well.