Small business credit and other accessible forms of financial capital are often crucial to business owners. Numerous expected and unexpected expenses come with owning a business. Keeping up with inventory demands, leasing or expanding a business location, and paying off monthly overheads are just a few reasons why small business owners might require access to additional capital or short-term funding. This is why it is important for business owners to maintain a high personal credit score.
If the owner of a small business does not maintain a good personal credit score, their ability to obtain a line of business credit or small business funding can become very limited. Cleaning up personal credit is no small task and can take a considerable amount of time. This is why it is important to avoid these common mistakes that can significantly impact your personal credit and decrease your chances of securing a line of business credit or small business funding.
This is probably the most common mistake a business owner can make in maintaining their personal credit. Any credit used should be paid on time, every time, and paid in full whenever possible. It’s also a good rule of thumb to borrow only 30% of your actual credit limit. Not only does this make it easier to make payments on time, but it shows potential lenders and funding companies the borrower is low risk and responsible. This can significantly increase the odds of receiving a positive response when applying for a line of business credit or small business funding.
On the other hand, late payments register as high risk when applying for personal credit. This is bad enough for the average person, but this can be disastrous for a small business owner. If a tough month rears its ugly head and losses outweigh profits, small businesses can drown without quick access to financial help. This is why one of the most important steps you can take to maintaining your personal credit is making all of your payments on time.
Another less known mistake business owners can make that negatively affects their personal credit is applying for too many loans or credit cards. Each application that is submitted counts as something known as a hard inquiry on your credit report. These hard inquiries inform financial institutions, funding companies and the credit bureau that you are actively looking to receive personal or business credit. This in itself is not an issue, but an overabundance of hard inquiries could signal desperation. This could be disastrous to your credit history and potentially bar you from receiving small business credit down the line.
This is probably the most surprising entry on this list of common mistakes to avoid when trying to maintain a healthy credit history. Simply not using existing lines of credit enough can negatively impact your credit score. The reason is due to the inability to assess your spending habits when that line of credit is not being used. This could potentially cause credit bureaus to negatively adjust your overall credit score.
If you’re hoping to take conventional routes for obtaining small business credit you must be very careful to maintain a high credit score. In the event of both unforeseen and standard operating expenses, business owners often rely on quick and painless access to business credit or small business funding to help them keep their doors open.
If you’re a business owner with less than perfect credit, Capflow Funding Group may be able to help your business find the best funding solutions available to provide you with the working capital you need. We work with business owners across various industries to help them keep their businesses on track. Our team will work tirelessly to see you through to success. Contact us today to find out more about invoice factoring and our other funding options, and how they can help your small business.