Being a small business owner can be exciting and financially rewarding. There’s no feeling like the freedom you get from finally being able to do what you really love and earn a good living while doing so. However, before reaching this point it is important that your personal finances are well taken care of.
Personal finances do come into play in several ways when starting your dream business. For one if you are in need of a loan or line of credit to start your business your personal credit will be used by the lending institution to determine if you are a trustworthy lender. A low credit score or negative marks on your credit report can be a red flag to the lender.
If you are looking to rent an office space/ physical location your personal financial history will also come into play. Landlords screen your credit to determine if you are a trustworthy tenant who will make payments on time. Having negative marks such as a prior eviction on your records will make it harder to lease spaces from most landlords.
But not to worry if you are looking to start a business that requires you to lend and your credit habits have not been the best in the past. It is never too late to begin working towards rebuilding your score and report. Here are some steps you can begin to take:
1. Work towards paying down existing debt like high interest credit cards. This will help reduce your utilization and may help boost your score.
2. If you plan on lending for the purposes of your business, avoid opening new credit accounts in the months leading up to your application. Opening multiple new accounts before applying for your business loan can create the perception that you are a high-risk lender. This can negatively affect the outcome of your application.
3. Check your credit report to make sure there is no negative mark or incorrect information. You are entitled to one free report annually from all three credit bureaus (TransUnion, Experian, and Equifax).
4. Practice good habits, Budget and spend within your means. If you build good personal finance habits it will be a lot easier to build good financial habits when handling your business’ finances.
Lastly, if you are working towards rebuilding your personal finances remember that it takes time. Stay positive and motivated by keeping your eyes on the price—Being able to start that business.