Business Loans and Personal Credit

Fund Your Startup, Increase Your Cash Flow, and Attract New Customers

by Andrea Watson | October 22, 2020

For entrepreneurs and small business owners, finances can be tough to deal with, especially in the beginning. Funding a business can be harder than you may have initially thought. You may need outside help.

So how are you going to come up with the fundage? You could hold a bake sale, or sell magazine subscriptions or lemonade. But chances are you’re going to need a business loan. These can be tricky, and here’s why:

Blurry lines
Personal guarantee
Default equals a devastating impact
Impacted company viability

Lines between personal and business credit can blur with a business loan. If you have to personally guarantee that loan, (likely) it can impact your personal credit. If you default on a business loan, the impact on your personal credit is devastating. Lenders sometimes report business loans on personal credit reports. Not only that, but it can compromise the viability of your company.

The Brighter Side

It’s not all doom and gloom, though. For example, when you personally guarantee a business loan, it could affect your personal credit for the better, if you stay in good standing.

A strong business credit file can help you in securing a business loan and take advantage of lower interest rates. This is where your cash flow increases. You may also be able to attract new customers and negotiate better payment terms with a strong business credit file.

You also have a chance of seeing a positive impact on your personal credit if you tap a home equity line of credit or if you use personal credit cards to keep your business rolling.

When a business is young, it is in the beginning stages of establishing relationships with other businesses. These relationships can affect the business credit of the baby startup as well as other people’s views of the young one.

At this point, other bigger businesses can be getting a hold of the information in your new businesses’ credit file, even if you didn’t know you had one. This is because anyone can monitor a business’s credit file. Unfair? Perhaps.

Get Ready

As is true with all financial decisions, it is wise to do your research before jumping in. But a good place to start is by checking out what types of interest rates you qualify for before applying for a loan. You can do that here.

Get Set

So what exactly should you look for? Good question. Your options are basically loans and lines of credit, and there is a myriad of institutions that give these out. You have to shop around a bit to get a really comprehensive view, but here is a sampling of a few:

BECU offers business loans with no origination fees and low interest rates. They are a credit union based around Puget sound, but they have partners in all 50 states. Their term loans feature Loan-To-Value of up to 80% and terms up to 84 months.
Ondeck is a highly-rated lender and sports fast turnaround, loans from $5k-$2500K, and monthly revenue of $8.5k.
Biz2credit is also highly rated. They require you to have been in business for over 12 months; but on the plus side, there is no minimum credit score required! Plus, they offer loans between $5k-$5M. That’s a huge chunk of change for anyone. Downside? There is no monthly revenue.
Fora Financial is rated 4 and ½ stars on Trustpilot. Here, you also have to have been in business for 12+ months. They offer loan amounts from $5k-$500K with $15K monthly revenue and a minimum required credit score of only 550.

Go!

Once you have settled on a lender, the time to apply has arrived. It may be a long and kind of complicated process, but hey, you need the dinero, remember? For your new venture. No Fear now, you are prepared, You have done your research, you are ready to commit and not look back. Just remember; don’t default; otherwise, your personal credit will go in the tank.

The Answer Is…

Yes, business loans can affect your personal credit score for the better or worse. That’s only fair, since your credit scores as they stand now can determine if you even get a business loan and if so, what type. It may be wisest for entrepreneurs and new startup founders to simply just separate their personal and business credit from the get-go.