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Is it Wise to Use Personal Credit for Business Finances?

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Whether you want to start a business or to finance one that is already functioning, you may find your financing options reduced to taking a loan. In such a case, you have the option of taking either a personal or a business loan.

Given the unpredictable nature of businesses, it may not be wise to mix your personal and business finances. This advice notwithstanding, there are some circumstances in which using personal credit for business finances makes sense.

When to use personal credit for business finance

When your personal credit is more attractive

Credit score is among the main factors that determine the amount and rate of a loan. If your venture hasn’t established a good credit, a business loan may not be advisable.

Such a loan will probably be denied or approved under restrictive terms and high rates. On the other hand, you can still access finances by going for a personal loan if your credit score is more attractive.

When you are setting up

Lenders will require proof of the revenue generated by the business to determine its capability in repaying the loan. This requirement puts you at a disadvantage when you’re setting up. Without any experience or books to show, a personal loan maybe the only way to go.

When you have no collateral

Business loans are mostly offered as secured loans. This means that collateral is required before approval. When starting a business you probably have no asset that can be tied to the loan or may not want to risk other existing assets due to the risk associated with businesses.  In such a scenario, a personal loan will do since it requires no collateral.

When the loan is within personal credit limit

Business loans attract higher interest rates than personal credit. However, personal credit comes with a lower limit compared to that of a business. The question you should ask yourself is; how much do you need and what will it cost you?

When the amount you need can be covered by personal credit, then go for it. You will avoid paying heftier interest that could run into thousands of dollar if you were to take a business loan.

When you don’t have a business plan

Another requirement for a business loan is an elaborate business plan. That’s easier said than done. The passion and hard work that you are ready to put into your venture cannot be captured on paper. What lenders want to see is an actionable plan that shows how capital will be utilized and the expected returns; to the last dollar!

In addition to this, lenders set stringent measures on how a business loan is to be utilized. Instead of allowing these requirements and terms to curtail your venture, you can tap into your personal credit as you get a feel of the business environment.

That said,

Personal credit might be cheaper and a good alternative to a business loan, but there are a few things to consider;

The major drive of setting up of a business is to generate profit. You inject part of the returns back into the business, and with time it grows into greater heights. If successful; what started out as a small business will one day grow into a huge venture.

To achieve that major boost, you may find yourself in need of a sizable amount. When self-funding can’t cover this, you may have to turn to lenders for a business loan.

Lenders will be more willing to finance your business if they have taken part in its growth. The point here is that, your bank needs to recognize your business as separate entity.

This kind of recognition is only possible if you take and manage business loans with them. Not only will this push your loan applications to the top of the pile, but you will get financial advice from the bank.

Final Take

Using personal credit for business finances is wise if it makes business sense to your specific venture. If it comes down to letting your business go under or abandoning your dream business for lack of financing, you have a winner. However, you should also be aware that personal credit does not elevate your business credit, something which may come in handy for future financial needs.



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Can Business Card Cards Hurt Your Personal Credit Score?

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A business credit card can be an invaluable tool for business owners. It can allow them to put expenses on credit that can be paid later when they’re paid by customers, making cash flow problems easier to manage.

But if not used well, a business credit card can cause the small business owner’s credit score to drop, affecting their personal credit.

Just like a consumer credit card, a small business credit card will have balance and payment information recorded on the credit histories of the primary account holder. If the business card is managed well, it won’t hurt your credit.

There are a number of ways to cause a credit score to drop. One that may affect business owners the most, though, is carrying too much debt on their business credit card that raises their debt-to-credit ratio, also called a credit utilization ratio.

This is the total amount of debt divided by the total amount of credit you’ve been extended — both personal and business. Keeping this number at 30 percent is a good way to improve a credit score. Much higher and lenders may consider you more of a risk.

Because business and personal credit card balances are combined to calculate a debt-to-credit ratio, having a large balance on a small business card, or even a balance near the middle of your credit limit, can have a huge impact on your credit ratio.

If a business and personal credit card each have $5,000 limits, carrying a $1,500 balance on each card will get you to the 30 percent threshold recommended by many experts.

Most small business credit cards require the cardholder to personally guarantee the debt. If the balance isn’t paid off through the business, the owner must pay the entire amount out of their personal pocket.

If there’s a problem paying a business credit card bill, the card issuers may report it to the cardholder’s personal credit reports. Some card issuers will report all activity, negative or positive.

Again, this isn’t a problem if you pay your business card on time and avoid high balances. Such habits on a business credit card may help boost a credit score when combined with a personal credit report. But using a business credit card too often could hurt your personal credit.

On the other side of this issue, if you have a thin credit profile because you don’t use credit cards but use cash and a debit card, adding a business credit card to your finances should help your credit score.

Not making on-time payments and not paying the bill in full each month can also hurt your credit score. As a business owner, you should weigh your company’s cash flow to make sure you can pay your business credit card bill in time and in full each month.

Remember that paying the balance off in full each month is a matter of timing. The balance that’s reported to the credit agencies is usually the balance of the statement closing date, not after a payment has been made. To have a lower balance be reported, make your payments before the statement closing date, or ask the issuer what date it reports payments made.

Having too many recent applications for credit, including for a business credit card, can drop a credit score.

Two credit applications in a short period of time isn’t a big deal, but more can be interpreted as a sign of financial distress and that you owe a lot of money.

When applying for a small business credit card, don’t apply for several business credit cards at once. If you’ve recently applied for a few personal credit cards, then wait a few months before trying to get one for your business.

Another type of loan to avoid when applying for a business credit card is a home loan. Wait until your home loan closes before applying for new credit cards. A new inquiry into your credit for a credit card can delay your home loan.

Also avoid applying for a small business credit card when applying for other types of loans, such as a small business line of credit, auto loan or other type of major loan.

Before opening a small business credit card, check with the credit card issuer to see if it reports your business card activity to your personal credit reports. Chances are you don’t want your business activity to spill over into your personal finances and credit reports.

If the issuer doesn’t combine them, it make using a business credit card a lot easier. Stocking up on holiday inventory, going to a big tradeshow, or just buying supplies to prepare for a big order can be key times to need such a credit card without having the activity combined with your personal credit file and bringing down your credit scores.

About Author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a journalist who specializes in personal finance. He has written for AOL Real Estate, HSH.com, US News & World Report, Wisebread, LearnVest, AOL Daily Finance, AARP, Wells Fargo, Allstate, the USC Marshall School of Business, and Credit.com, as well as other insurance, credit and investment websites. Check out his website at AaronCrowe.net.



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What Criteria is Required for a Business Loan

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If you have an idea for a new business, or a plan for expanding your existing business, your ability to achieve your goals could depend on your ability to receive financing. A transparent understanding of small business loan requirements can better prepare you for the types of questions a bank might ask and the things you will need to provide.

You & Your Business

While business and personal loans are different, you will likely find that your ability to secure financing for your small business is contingent on your own history and characteristics.

Banks expect borrowers to provide fundamental personal insights. This includes current and previous addresses, educational level, criminal record, and a credit report, along with other information. A lender’s willingness to give your company credit is going to depend directly on your financial situation, such as your current income to debt ratio, debt history, and ability to contribute personal assets as collateral.

Obtaining a small business loan may also be determined by your ability to convince your loan specialist that your business plan is viable. This will come down to your experience, education, credibility, and ability to present a well-conceived plan.

Small Business Loan Bank Requirements

What exactly do lenders expect of you when considering your company for a small business loan? Here are some general loan requirements to check off before you submit a loan application:

1. Personal Credit History

Unless your business is already well-established and profitable, your personal credit history will take the place of your company’s financial history. Before you try applying for a small business loan, it’s a good idea to understand where your credit stands with each credit bureau and if any improvements need to be made.

2. Business Plan

In most cases, your ability to repay your business loan will depend directly on the success of your business, so lenders are going to want to see a viable business plan. Business loans are only distributed when there is a predictable rate of return on investment for the capital provided. Your business plan should be a strategic document that includes an overview of your business goals, a competitive analysis, a marketing plan, and well-researched data on price points and cost factors.

3. Business History and Projections

If you have an existing business, your lender is going to want to review a list of the organization’s liabilities and assets to ensure that your business is not financially over-extended. Balance sheets and cash flow statements provide lenders a dynamic representation of whether your business is growing and succeeding, or failing. If your company is not has not had the chance to build up this type of history, you will need to demonstrate credible projections that give your creditor confidence in your ability to repay the loan.

4. Asset Base

Most banks won’t release finances without securing it against an asset. For a larger corporation, assets may include machinery, office equipment, or any real estate the organization owns. Businesses can also use stock and intellectual property as an asset, if it has a fair market value. In some cases, the bank will request collateral. However, it is generally only necessary for low-rate installment debts and start-up loans. Using personal assets is possible, but not always preferable.

5. Industry Experience

Banks rarely gives loans to individuals in a business that they don’t have any experience in. Most creditors will want to know to see the company founders or board members who have experience and knowledge in building a profitable business. If you don’t have experience in your desired industries, add valuable members to your time by seeking business advisors. This will not only help you in obtaining a loan, but these advisors can play an essential role in problem-solving while you feel out a new industry.

Keep in mind that the entire application process is about getting the lender to believe in you and your business. While the above criteria are important, your organization, thoroughness, and belief in yourself while presenting the information can make or break your ability to receive a small business loan.



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Personal Credit Scores & Business Loans

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Will Your Personal Credit Score Affect Your Business Loan Application?

Congratulations! You’ve decided to begin the process of applying for a small business loan. This is an exciting time for your new or existing company and could forecast many great things.

If this is your first time applying for a business loan, you might not be aware of the potential barriers that can get in your way. After all, receiving a business loan for your start-up or expansion can be competitive, and banks want to ensure that they trust only the best with their investments. Before you jump all in, you’ll want to have a clear understanding of the things that could qualify or even disqualify you from receiving funding.

One of these factors is your personal credit score.

If you are a small business owner in the United States, the three credit bureaus track two profiles: your personal financial history and your business credit history. Each profile plays a vital role in getting approved for a business loan. However, if your starting a new business or your existing business doesn’t have established business credit, the lender may rely more heavily on your personal creditworthiness when making their lending decision.

While your personal credit score and business credit profile express different information about you and your business, both have a substantial impact on the options available to your business and your ability to qualify for a loan.

Why Lenders Care About Your Personal Credit Score

Some business owners don’t think that their personal credit score has much of an impact when it comes to their organization. This just isn’t the case. A potential creditor is going to consider your personal credit score when making a decision to grant your company a business loan.

In general, a potential lender is going to view your credit score to determine if you:

  • Have the ability to repay the loan?
  • Are going to repay the loan?
  • Will pay the loan even if something unexpected happens?

Lenders see your credit score as an insight into your financial health and responsibility. Unfortunately, if a lender sees that you are not able to manage your personal finances, they may assume that you are a high risk for managing business finances as well. This is especially true if you are a new business owner. Without an established business history or credit to your company’s name, the only way the lender will be able to determine creditworthiness is by accessing your personal credit score.

How is my credit score calculated?

Three primary credit bureaus generate a credit score for lenders to access. Each reporting agency uses the same basic FICO formula to score the information that they collect. They also obtain personal information such as full legal name, date of birth, employment history, address, etc. They also list a summary of information that was provided to them by your creditors. Other information found in public records like bankruptcy or judgments are also included on your credit report and factored into your score. Each time that you apply for credit is also recorded on your report.

There are primary differences in the way that the three credit bureaus review and calculate your personal credit history. For examples, Transunion holds more detail about your employment information, Equifax separates your accounts that are open and closed, and Experian will record data like whether or not you are paying your rent and other bills on time. Essentially, these agencies are competitors, and lenders may choose to report to one bureau and not the other. While their data might include different results, their score is typically similar.

Importance of a Good Credit Score For Your Business

While you may not feel that your personal credit history is the best representation of how you will meet and exceed your business’s financial obligations, the need to establish and maintain a positive credit score is vital for every small business owner. Most banks and lenders take a close look at your credit score when they evaluate your worthiness as a business borrower and even consider the score in their decision-making process – regardless of how long your business has been operating.



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What Is A Good Business Credit Score

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According to Dun & Bradstreet, the major business credit reporting and rating agency, a business credit score of 80 is considered a good credit score for businesses.

The Business & Personal Credit System

It is a well-known fact that personal credit scores range from 300 to 850, and the higher the score, the better a consumer’s chances of getting a personal loan, credit card, or other type of credit.  A person with no credit or bad credit suffers a distinct disadvantage when buying a home, automobile, or other necessities of modern life.

Business credit, also known as trade credit, is a very similar system that replaces a person’s name, address, and Social Security number with the business’s name, address, and Employer Identification Number.  However, business credit scores range on a scale of 0 to 100, and these scores are based almost entirely on a company’s ability to pay its bills and invoices on time.

What A Business Credit Score Means

For the most part, a business credit score relies almost entirely on a company’s ability to pay their debts to other businesses in a timely manner.  It is a common practice in the business world for companies to extend their products and services to other businesses to be paid within 30 or 60 days from the time it is received.  These companies then report how long it takes to receive payment on their invoices to one or more of the following business credit reporting bureaus:

  • Dun & Bradstreet
  • Equifax Business
  • Experian Business
  • Business Credit USA

Though many factors may play some small role in a business’s credit score, the rule of thumb for credit rating is the length of time a company takes to make good on their invoices:

  • 20 or Lower – A score of 20 or lower means that a business is paying for products and services lent to them on good faith 120 days or more late.
  • 50 – A credit rating of around 50 generally means that invoices are paid 30 days or so late.
  • 70 – A score of about 70 signifies that the company pays its invoices about 15 days late.
  • 80 to 100 – 80 and above means that the business has a good payment history, and pays their invoices on time or earlier than expected.

Generally, it takes a credit rating above 80 for other businesses to consider a company a risk worth taking.

Building Business Credit

Businesses are under no obligation to extend the professional courtesy of goods and services on credit.  Likewise, they are also under no obligation to report timely or delinquent payments to any of the major business credit reporting agencies.  This can make establishing and raising a company’s business credit rating difficult, but there are a few ways to raise this score by other means.

One way to help raise a business credit score is to contact Dun & Bradstreet and apply for a Data Universal Numbering System (DUNS) number – a unique 9-digit identification number that the credit bureau uses to track individual companies efficiently.  The application is normally very easy and can be issued in only a couple of days.

Another, very effective way of raising a business credit score is by working with credit experts, like Credit Absolute, to improve your business credit ratings.



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Business Credit vs. Personal Credit

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By now, you probably know about the importance of good credit in qualifying for low interest rates, getting a loan, and the various other impacts a good FICO score can have on your finances. But unless you’re already a business owner, you may not know that there is a credit score associated with your business too.

Much like personal credit, business credit is an important metric lenders use to assess your aptitude as a borrower. However, there are significant differences between the two, and aspiring entrepreneurs need to be aware of the importance of business credit to help protect their professional and personal finances.

What is business credit?

Just like personal credit, business credit is a measurement of your likelihood to pay back lenders based on previous payment history. As you establish a business, there may come a time when you need to access credit to cover unexpected costs or continue growing, at which point lenders will assess your business credit before accepting you for a loan.

Business credit has several things in common with personal credit, but it is important to recognize the features that make each unique. Personal credit is a little easier to understand at first, since it is reported by three well-known credit agencies. Business credit, on the other hand, gets a little more complicated due to its unique reporting standards.

Here are some of the different agencies that report business credit scores and the scales they use:

  • Dun & Bradstreet PAYDEX (0 to 100)
  • Equifax Business Failure Score (1,000 to 1,610), Credit Risk Score (101 to 992) and Payment Index (0 to 100)
  • Experian IntelliScore Plus (0 to 100)
  • FICO SBSS (0 to 300)

If you’re confused, you’re not alone. Many people’s first impulse is to shirk away from building business credit, since it’s yet another financial system to learn. But, in reality, business credit is an essential element of entrepreneurship and should not be ignored.

Why is business credit important?

Building business credit might seem overly complicated, and like just another unnecessary headache — after all, you already have personal credit to borrow against, so why bother with business credit?

The most significant reason to build business credit separate from personal credit is to minimize personal risk exposure. If you borrow on personal credit for your business any number of unforeseeable financial crises would not only tank the business, but also your personal credit. It’s better to avoid putting all your eggs in one basket. That way business prosperity doesn’t negatively mark your personal credit.

It’s also important to point out that business loans are notoriously hard to get. You will have a much better chance for approval if you bolster your business credit over time — uninhibited by periodic personal credit hiccups.

Even if you are feeling particularly confident in your personal credit, and its lasting power to fund your business, there is still another significant reason to establish business credit independently: anyone can check your business credit without authorization. For personal credit, you have to give permission to view it, but with business credit anyone can check it at any time.

You never know who will check your credit, and this score is often perceived as a direct reflection of your professionalism. With the added threat of uninvited query, you don’t want to run the risk of presenting an unfavorable business image due to a personal credit score dip.

How to start building business credit

When it comes to building business credit, you have to walk before you run. The first step is to incorporate — meaning you must designate the business as a separate legal entity from yourself. Incorporating is an important step for various legal and financial reasons, and a necessary step toward establishing business credit.

A common rookie mistake new business owners make is funding their business expenses through personal lines of credit or personal credit cards. This actually makes them financially liable for business actions. Not to mention, if you conflate your business and personal credit, lending approval, credit utilization, payment history and other factors will equally affect your standing and that of your business. It’s best to separate the business from your personal credit to eliminate the threat of exposing personal finances to business actions.

Next, you will need to establish business financing. For new business owners, the most common and convenient way to build business financing is to get a business credit card. Just like with personal credit, a starter credit card that you can reliably payoff is a good way to get a foothold on establishing business credit. Otherwise, after you establish rapport with vendors, you can ask them to report your illustrious payment history to credit agencies to build up your score.

Treat your business credit score with care

Overall, a good rule of thumb is to practice the same careful credit habits you would exercise for your personal score: keep your credit utilization under 30 percent, pay debts on time (or even early), and avoid delinquency.

If you enact some of these best practices, you are sure to improve your business credit. But sometimes you need a little jumpstart to get your personal credit score up to snuff. Professional credit repair services are a good place to start. Credit repair professionals can review your credit report and help you work to remove inaccurate or misleading items — resulting in a more advantageous reflection of your aptitude as a borrower.

Backed by over 26 years of service, Lexington Law leverages industry-leading tools and legal expertise to remove unfair, inaccurate, and unsubstantiated credit report items. Last year alone, clients saw 9,000,000 negative items removed from their credit reports. Contact Lexington Law for a free credit repair consultation, and start on the path toward better credit.

 

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.





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How Poor Credit Could Affect Your Business

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If you’re an entrepreneur applying for a business loan, you might think your personal credit history has no effect on whether your application will be approved. After all, business credit and personal credit are two different things, right?

Unfortunately, that’s not entirely accurate. While it is true that one’s personal credit rating isn’t directly tied to one’s business credit rating, poor personal credit can still have financial consequences for your business. If you’re considering starting a business but your personal credit is in need of repair, here are some important considerations:

1.   It may be harder to secure a business loan

Banks and other lenders will likely be looking at your personal credit history when determining whether to approve your application for a business loan. And it’s much harder to secure loans for people with poor credit. Lenders want to know you are a responsible and reliable borrower. If you have a credit score below 630, you may well be denied — and make that 700 if your business is still in its infancy.

It’s true that banks will also look at your business credit score (which generally ranges from 0-100, although your score can vary between the three credit bureaus), but since many new business owners don’t have much business credit history, personal credit score is more important.

2.   Vendors may not want to work with you

Your credit score will also come into play when it comes to signing up with vendors, suppliers and other services. If you’re looking to lease office space, you will undergo personal credit checks by the property manager and various utilities (electric, Wi-Fi, water, etc.). If your credit isn’t up to snuff, you may have to pay additional fees or higher rates. And if your business relies on distributors for inventory, your poor credit history could make them dubious of working with you — especially if doing so would require a payment plan.

3.   You may not even be able to get off the ground

There are a lot of costs associated with starting a small business — permits, insurance, marketing costs and office supplies, to name just a few. Gathering enough capital to offset these startup costs is one of the biggest hurdles for any small business owner. Many entrepreneurs rely on their own money or help from friends and family to pay these expenses — especially if they aren’t able to secure a loan. But if your finances are all tied up in repaying personal debt, you might not have any capital left to invest in your business dreams.

So what can you do?

Consider taking steps to get your credit back on track before launching your business. Start by making plans to pay down your debt and get your credit utilization under 30 percent. You should also keep a close eye on your credit report to make sure everything is accurate (you can check annually for free at AnnualCreditReport.com). If you need additional credit help, consider working with a reputable credit repair company, which can provide advice and resources to assist you in fixing your credit.

Personal credit can make or break your business. Don’t allow yours to stand in your way. Start taking the steps today to improve your credit, so that you can start taking steps tomorrow to make your business dreams a reality.

If you don’t know where to start, the experts at CreditRepair.com can help. We offer a free credit personalized credit report consultation and credit report audit and can help get your credit in shape to launch your new business.

Carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.





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BBB Business Profile | Key Credit Repair

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(617) 265-7900

10 years in business
686 Morton St Ste 2
Boston, MA 02126-1571

BBB File Opened: 12/28/2009

Business Started: 02/01/2007

Business Incorporated: 09/25/2007 in MA

Type of Entity

Limited Liability Company (LLC)

Business Management
  • Mr. Nikitas Tsoukales, President, CEO


Products & Services

Credit Repair, Credit Coaching, First time home buyer education, Credit Restoration, Credit Consulting

Service Area

We service the following area(s): Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virgin Islands, Virginia, Washington, West Virginia, Wisconsin, Wyoming

Alternate Business Names
  • Commonwealth Equity Group, LLC


Number of Employees: 

10

Refund & Exchange Policy: 

The business states they offer a 100% Money Back Guaranteed.





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