As a new business owner, credit might possibly be the last thing on your mind. After all, how does it relate to your million-dollar idea? You may be surprised to hear that the success of a new small business can depend largely upon the creditworthiness of its owner. Whether it’s space, equipment or adding employees to the payroll, it remains the owner’s responsibility to foot the bill, and those expenses can quickly exceed the limits of a personal budget.
Some owners turn to angel investors for the capital to fund their widget, but many others will secure a small business loan or seek a line of credit from a bank. Still others elect to use their own personal credit cards or a combination of these types of credit. Savvy small business owners will try to find lower interest rates on small business loans rather than shouldering the increased cost of using a personal credit card. When starting a business, expenses can multiply at lightning speed, so optimizing your funding strategy helps get the doors open and the lights on.
Unlike unsecured credit cards, small business loans generally need to be secured by assets: namely property or goods. You’ll also need to calculate the actual cost of the loan, and decide if you’re comfortable living with some of the imposed restrictions (such as caps on your salary). That can be a heavy barrier for some new business owners after they review the finances. But this remains a
To secure a small business loan, applicants are usually asked to submit a precise business plan, tax returns, balance sheets, income statements and credit history – as well as additional documentation – to the loan officials who will review your request. Considering the fact that a high degree–about 80 percent–of new businesses fail within three years of their inception, it’s easy to see why lenders are reluctant to finance each new business that seeks their support. If securing a bank loan is not a possibility for you and your business, using credit to finance your entrepreneurial dreams can be a fallback position. But always keep sight of the risks, and set realistic goals.
Read more about Small Business Credit.
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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.