How Personal Credit Can Affect Business Credit

We all try and maintain a certain separation between our personal matters from business matters. This is just not true when it comes to credit.

For lenders, they will always view the behavior of the business is based on the behavior of its owners. How you deal with debts will truly reflect how the business will operate in terms of managing its debt. It is very important that we identify the reason what our personal credit history can do to affect our business credit. Here are a few points on how our personal credit can affect business.

rejected loans

Basically, this is the greatest impact that can hit your business. A bad personal credit score will greatly affect the business when they apply for a loan. Most likely the lender will reject the loan application as they will associate the owner’s bad debt management with how the company will manage their own debt.

high interest rates

High interest rates can be a lender’s resort to granting the loan. They may not reject the application due to circumstances that business itself is doing great and all requirements have been satisfied. But due to the association of the business with an owner who has bad credit history, risk of experiencing bad debt management is not far off as the decision maker of the business is the one who maintains a bad credit record.

funding difficulty

This may be a concern where the business would opt to getting a funding from an investor rather than going to a bank for financing through a loan. It would often be difficult for a business to convince an investor if the owner has a bad credit history. An investor would want a probable estimate when they would get paid back. With a bad credit history, it shows its probable investors difficulty in getting paid.

lease difficulty

Lease is a form of loan where the business will receive the use of the property by virtue of fixed lease payments which is equivalent to an amortization in mortgage loans. With bad credit history, it gives the lessor that the business will give them difficulty in payments. In cases of financing, it is often difficult to separate the owner’s personal finance matters from the business. At the end of the day, the owner’s decision will reflect his or her own behavior in financial matters.

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