The state of your personal finances says a lot about you. Do you ensure that your debts are well documented, filed logically and always paid on time? If so, you are probably a dependable person who is easy to do business with.
On the other hand, maybe you are messy, disorganised and constantly pay bills late? If so, you most likely will have a hard time keeping other aspects of your personal life in order. Friends and family might characterise you as unreliable – and even untrustworthy.
Personal credit history and your business
It's not just friends, spouses and family who may judge you based on the way you conduct your financial dealings. Banks and other credit providers are likely to question whether to lend you money based on your past history with other lenders.
For some, this assessment is nothing to fear. But if you have a shoddy record of unpaid bills and a trail of angry debtors, it is certainly cause for alarm. Your inability to get credit can wreak havoc on your personal life and prevent you from buying a home, taking a vacation or planning your wedding.
While the hindrances to your life that poor credit can cause are annoying, many people do not realise that the mistakes they make with money in their personal accounts can also have massive repercussions on their business. Small time entrepreneurs who have a brilliant business idea may be left frustrated and regretful when they realise poor money and finance choices from the past now prevent them from starting their own business.
Why is credit important for a small business?
Credit is crucial to any small-business owner struggling to get started. There is no doubt that banks will look at your past personal credit when determining if they should give you business credit, and without these loans it may be impossible to buy stock, rent premises or hire staff. Your dreams of starting your own business may be dashed before you even get your idea off of the ground.
What can you do?
If you're planning to start your own business, it's never too early to start focusing on the health of your personal finances. Here are some of the first steps you can make to assess your viability as a potential borrower:
- Request your free credit report – Before you start your journey to improve your credit rating, you must assess your current state. Checking your credit report can help you to discover old unpaid bills that have gone to collection, so that you can clear them up as soon as possible.
- Pay your bills on time – This one should go without saying, but even one missed payment on a credit card can have long-lasting repercussions.
- Consult with a financial planner – These services are ideal for people with mediocre or poor credit ratings. Financial planners are experts at helping you determine what small measures you can take to increase your lendability.
Once you have started on your journey from credit zero to hero, you will increase your chances of receiving credit from banks and lenders when the time comes to start your own business.
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