Entrepreneurs understand that they need to keep their business’ finances in order if they’d like to obtain a business loan in the future. However, many are not aware that it’s imperative to keep their personal finances in tip-top shape as well.
There seems to be a major misunderstanding among small business and startup owners about the requirements for obtaining a business loan from a bank. I have seen many entrepreneurs not realize that even if the business is formed as a corporation, they will likely still need to provide a personal guarantee in order to get a loan. That means that their personal credit will affect whether the business gets approved.
Confused about why that’s the case? Watch this week’s video to learn more about why it’s so important that business owners maintain good personal credit in addition to keeping their company’s finances in top shape.
Not only is good credit imperative, but much needed as well. With today’s economy, people are wanting to start their own business, and using their own personal credit line to start off. People are using their savings and credit cards. That is where the good credit comes into play – “No credit, no loan!”
Hi Cate,
Great points here about how things really work. In fact, another problem you can run into is an issue with collateral. Even if you have great credit, a bank may be unwilling to lend you money if you have no assets to put up and no personal money invested. Again, the concern is, If you have nothing to risk, why would the bank risk its funds? Thanks for sharing with the BizSugar community.
Heather – You’re very welcome and thank you for commenting both here and over at BizSugar! Great point about collateral!