There are so many different things that go into starting a small business. Between all of the paperwork, legal stuff and business plans, the big question that comes into more focus is financing and how you'll manage your small business expenses.
When starting your new business, you may have saved up money to lift it off the ground for the first few months before it starts to generate a profit, or maybe you got a loan from a family member or friend to get things rolling. But, what if you start to run out of that money before your business cuts a profit and you need cash to live on? Your next option is to get a loan or a credit card to handle monthly expenses.
Here's the problem - you have poor or mediocre credit. You might think, "Well, since my business is new and my poor credit is my personal credit, I should have no problem getting a loan or a credit card for my business." The truth is, if you are the only one who owns and operates your business, your personal credit will be used to determine whether or not you will qualify for loans or credit cards for your business.
Many wonder why personal credit has anything to do with their business, but lenders look at it like this - If you can't manage your own credit, how in the world are you going to manage the credit of your business? They assume that the same trends will continue that have occured with your own credit, which is why you will be denied for any loans or other forms of credit if you have a poor history.
In order to improve your credit rating, you need to take action. Start paying bills on time and stop applying for any new lines of credit. Work on paying your debt down and establishing a better credit history. As long as you stay on it and keeping working towards paying off your debt, you'll start to see your credit score increase, which will help you qualify for lines of credit and other loans for your small business.
If you're getting ready to start your own business and need startup money, you need to take your personal credit rating into consideration. If you have a business with other owners (such as a partnership or multi-member LLC), then you may have a better chance at obtaining credit or a loan, as long as your business partners have good credit.