When looking for business credit, the first thing that you should think about is whether your own credit history is good enough. While it’s important to keep personal finances separate for finance and accounting purposes, lenders will want to check your personal credit history when making a decision on whether or not to extend you the credit.
Think about it…, lenders are in the business to make money. However, they are also aware that more than 50% of small businesses in the U.S. fail within the first five years. If they were to lend to just anyone who presents a business plan, then they would we taking a huge risk. If the business fails then the lender might not be able to repay the credit. If this trend continues for a few months, the lender might be forced out of business.
In most cases, if you’re just starting out, you may not have a business history to show for. In such circumstances, the lender might request to see your own personal credit history. If you have a good history then the lender might be led to believe that you’re responsible enough to honor your obligations. Therefore, you will likely get the credit. However, if your credit history has been poor for a significant period, then you may be viewed as unreliable and, therefore, could be denied credit.
On top of personal credit, some lenders ask for a personal guarantee of the business loan. Unless you’re desperate for the loan (which is an awkward position to be in), you need to decline such guarantees. Personal guarantees on business credit can impact your personal credit. Basically, it grants the lender permission to come after your personal assets if your business fails.
Unfortunately, you may be forced to enter into such an agreement especially if you don’t have a strong business credit. However, once the business takes off and you develop a solid business credit, then your personal credit may not really be affected. However, if you stick to your home business no matter how good your business credit is, then some lenders might still want to you to disclose your personal credit before extending you a loan. This can be frustrating but sometimes you have no otherwise.
This is why you need a bad credit merchant account to help you get business loans without much trouble. You can get such accounts from emerchantbroker.com.