As a business owner, having a good line of credit will help you build your business to greater heights. However, having poor credit may be difficult when it comes to applying for a business loan. According to Bloomberg, 200 million U.S. citizens have a registered credit score by FICO and only 1.4% of the population has a high 850 score. But even with a perfect score, entrepreneurs might not have the approval to apply for a credit loan.
As a business owner, you might be wondering how to improve your credit report. There are things that you can do to take control of your status and raise your score. Start by understanding your credit report and determine the best plan to fix your rating. Prevent any further debt by paying your bills on time and catch up on late payments. With credit repair assistance, you will learn how to fix bad credit and remove negative items from your credit report. Once you have accomplished a decent score, you can set the right path towards establishing your business. In this guide, we will discuss how your personal credit may affect the future of your business plans.
Here you will learn how personal credit scores will impact your business venture.
Sole Control of Business
If you don’t register your business as a legal entity, you will have to claim sole proprietorship. Your business credit becomes your personal credit. As a result, your company runs under your name and social security number.
When you choose to be a sole proprietor, you will be liable for any debts made with credit cards and business loans. Just missing a single payment can affect your overall credit score. In fact, some lenders will not approve your business for future loans. You can prevent this by paying off all the debts on time and in full. Otherwise, your personal credit history will result in higher rates.
Business Operates on LLC Ownership
An LLC does not mean your personal credit score will have a great influence on your business. However, a pass-through entity will result in the company’s tax return under your name. What makes LLC different from sole proprietorships is having their own tax ID. The Employer Identification Number will give your business independence and refrain from using your personal credit when applying for a loan.
Most bank lenders will ask for your income statement when applying for a business credit loan. This is to help establish support for an application. With a poor credit history, it will be difficult to receive any future business loans. Keep in mind, creditors may also suspend your account and allow you to repay the current debt before you can re-apply for a new statement. Some banks may even offer a money settlement and suggest unique solutions to help repair your debt.
Corporations have the ability to gain their own identity. Businesses can have their own bank accounts, tax ID number, and hire accountants to file their taxes. As a result, your personal credit will not be considered when applying for a new loan. You can apply for a separate credit rating for your business. However, it is usually reserved for large brands rather than solo startup companies.
When looking to finance your business, consider the best opportunities for your investment. Whether you are running as an LLC, sole proprietorship, or Corporation, your personal credit will play a strong role in your business. Before you consider starting your business, aim to start with a great credit score and make your payments on time. Starting a business without debt will improve your chances of getting a loan and achieve successful results.