17September 2009
Small business owners should never use their personal credit to finance their company. Unfortunately most do and some consultants even advice that they do. The problem is that when you tie your credit lines together, it can have a negative impact on your overall credit worthiness. The most common ways that small business owners do this are:
- Using personal credit cards to pay for company expenses.
- Using loans from your savings, retirement or other investment accounts to finance your company.
- Obtaining personal loans, like 2nd mortgages, to finance your company.
The downside to using these methods is as follows:
- The more personal credit you have, the lower your credit score may become. Every time you apply for credit your history is looked at. This can also lower your score.
- The more you borrow for your company, the less personal credit you have when you may need it. Maybe you want to buy a new house or new car, but you can’t because you have too much debt outstanding.
- If your small business fails, it takes your personal credit with it. This can be devastating for you.
If you are already in this position, take heart. There is a way out of this situation, but like any other small business issue, it takes planning. You need to sit down with a business coach or expert and work your way out of this situation by establishing a separate line of credit. There’s another benefit to this and that is you are now building an asset that can be sold or passed on to your children.
You can start to get a handle on financing your company by clicking on the link, FREE BUSINESS ASSESSMENT at the t op of this blog.