You have an idea for a business, but you are unsure how to fund it. This is not uncommon. The truth is that many entrepreneurs start their businesses with personal credit cards or personal loans. While this may seem like the best way to get started at first glance, some serious drawbacks often catch up to people down the line. This blog post will discuss the importance of managing your personal finances to obtain business funding more practically!

Limit Your Credit Utilization

When it comes to personal credit, you want to ensure that your utilization rate is low (30% or less is recommended). This means that you are using a small percentage of your available credit. If you have a $20,000 limit on your credit card and are only using $6,000, your utilization rate is only at 30%. Ideally, you want this number to be as close to 0% as possible. This will help improve your credit score over time.

Your Payment History

Another important factor to consider is your payment history. Make sure you always make your payments on time and never miss a payment. This will have a negative impact on your credit score. Also, keep an eye on your credit utilization ratio. As we mentioned before, you want this number to be as low as possible.

Personal Credit

When it comes to business credit, there are a few things you need to keep in mind. One of the most important is your personal credit score. This will be one of the factors that lenders look at when considering whether or not to give you a loan. In addition, make sure you have a good credit history with your personal creditors. This will show potential lenders that you are reliable and can be trusted to repay a loan on time.

Business Financial Health

Another factor that lenders look at is your company’s financial health. Make sure you have been profitable in the past and have positive cash flow going forward. Also, ensure that you have updated documentation such as balance sheets and cash flow statements prepared by a CPA, tax returns prepared by business tax professionals, and personal financial statements. This will show potential lenders that your business is a solid investment.

Negotiate Your Rates

The last factor we will discuss is personal credit history and interests rates. Your personal credit score can play an important role in this as well. If you have a great personal credit score, then you may be able to negotiate for lower interest rates on loans than if your personal credit was not so strong. This means that lenders see you as less of a risk, which allows them to charge low-interest rates on the loan they give you! We hope this clears up the misconception that personal credit has no bearing on obtaining business funding, which couldn’t be further from the truth. Hopefully, this will help you in the future with obtaining business funding.

If you can demonstrate that you have a good credit score, a solid repayment history, and are a profitable business, then you will be in a much better position to obtain business funding from lenders. Managing your personal finances is an important step on the path to success!

The bottom line: make sure you manage your personal finances to obtain business funding more practically! This will help improve your chances of success as an entrepreneur. Thanks for reading!

To learn more about business credit scores, click here: “4 Questions To Understand Your Business Credit Score”. or give us a call at (678) 369-9510. We would be happy to help.