Minggu, 07 April 2013

Small Business Debt: How Can It Affect Your Credit Score?

Many years back, small business debt was not considered a part of the proprietor’s credit report. However, time has changed and a great number of financial institutions are adding business debt in determining an individual’s credit score. Increasing challenge is the reality that it has become even more difficult to obtain business credit cards and loans today.

If you wish to borrow money, your business should be at least two years old or have an annual profit of $1 million. Those that do not meet the criteria will have to personally guarantee their loan. If you do not pay your bills and loans on time, you just might accumulate small business debt. What’s even scarier is that this can potentially damage your own credit score.

Pros of Signing as Guarantor for Your Debt

It is not a mystery that businesses need money in order to survive. Startup businesses can go to lending agencies where they can get cash to finance their new company. However, not all organizations are willing to take the risk. You may have to sign as guarantor so you can obtain the money that you require. Doing so allows you to successfully support your business’ needs. The money you borrowed can be used to offer new products or services and even to expand your company. Clearly, guaranteeing personally your debt will strongly benefit your business.

How Small Business Debt Affects Credit Score

When you personally guarantee your business debt, you may be facing a few problematic situations especially if you don’t repay your loan. These are:

Bankruptcy – When you declare that your company has gone bankrupt, this will appear on your own credit report even if the money you borrowed is for your business. You can avoid this through paying your debts in full as quickly as you can.

Personal Obligation – Since you have personally guaranteed your business loan, this denotes that the loan is under your name. This can get worse if you already have debts on your business credit cards, and you are planning to buy a car or perhaps a property. Having business debt will make it tougher for you to obtain credit and financing your personal needs.

It’s Still Business Revenue – If you wish to qualify for a gold or platinum credit card for yourself, you cannot use your business’ income as your own.

It’s Still Debt – When you have accumulated debt, regardless of the fact that it is for your company, it will extremely hurt your credit score. This is true even if you pay all your bills in full each month.

Your Credit Report

As a business owner, you may be obliged to personally guarantee your business loan. If you think that you can pay off the loan by the agreed period of time, small business debt may not be a huge matter. However, if you are unable to repay the amount you borrowed, this misbehavior will be reflected on your credit statement. Evidently, your business’ credit history is now a part of your personal credit report.

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