8 ways in which a poor personal credit may affect your business venture

Business owners often presume that it is best to keep personal finance and business finance separate. They assume it is only practical to compartmentalize financial aspects of their personal life and their business requirements. 

However, this is not true. It is quite possible that your personal credit might adversely get impact your business. Even if you keep them separated, bad personal finance decisions can affect your business as well. Below are the eight poor personal choices that might have a negative effect on your business:

Inability to get business credit: This might happen when your personal credit shows late or non-payments or if you report bankruptcy on your personal credit reports. This type of information may show up easily and can be easily reviewed by business credit sources. 

In such cases, a financial company that you approach to extent capital to you might question your ability to repay back the debt. This might lead to further rejections in terms of bank loans as well as business credit card applications.

 

High interest on any loans: If someone take a chance on you as well as offers you any kind of business credit, then you will have to pay extremely high interest rates on that credit. Those high interest rates will then similarly drive up the monthly costs that you and your business has to cover. 

This will simply swallow the profitability as well as the ability to reinvest in  other areas, which may become important in future business development. Also, high interest rates might simply extend the time taken to get these business loans paid off.

Zero or less funding interest: If you are at certain point in your business where you are seeking an investor, such as a venture capitalist, you can even try getting help from a crowdfunding platform. 

Such platforms verify with careful background checks of personal credit whether the person will be able to deliver a return on investments. In case, potential investors conduct a background check and find that your personal credit is poor, they will not trust your ability to return their investments in your venture.

Challenges with getting a lease: Like any other item on this list, may it be a commercial lease or even a co-working space agreement, you will simply find yourself ignored or denied since your poor personal credit score will reflect your poor financial planning; 

many lease providers will not want to take any kind of risk over you. If you don’t have enough space to carry on your business, it can severely hamper your success as well as your ability of growing your business over time.

Extra fees on overhead costs: Right from deposits on the utilities to the fees and assessments, your personal credit problems may incur additional costs and thereby minimise your business growth momentum by consuming the bottom line. 

This may further force you to find various ways to cut way back in various areas that you may have wanted to improve. This will be prolong the time required Then, it further extends the time required to make profit.

Tarnishing of your personal brand: Your personal brand is the trust your consumers, clients, and investors have on you. If your bankruptcy or poor personal credit becomes public, it might damage your personal brand.

Relationships with required vendors or suppliers: Suppliers as well as vendors will surely need some kind of credit checks along with the verification of your ability to repay for what you are purchasing from them.

Similar to investors, they are most likely to be the most unforgiving about your poor personal credit. You will not be able to purchase on the credit from vendors or suppliers, and you’ll find it to be challenging to build and sell your products or implement your services to maintain your operations.

Loss of talent: Your employees have joined your company by trusting that your venture will sustain itself and assure that they get their paychecks on time. A poor personal credit may cause potential employees to distrust you and your company. They might not be confident enough to join your company or stick around.

 

Suppose you start a business, then do not wait till you have worked out your personal credit problems. This will reflect on your business decisions and show whether you are a reckless or a more prudent business owner. 

Investors and suppliers prefer investing in people and ventures that have the ability to repay the debt promptly, as well as balance the books, and reinvest in the business. Your business deserves to get a chance to thrive and a good personal credit score keep away unnecessary fees as well as overhead costs.

Source: Business Focus