Credit is a crucial factor in your business because it might prevent you from expanding it in the long run. So, if you have a good credit score, you might be able to get favorable rates on loans to finance your startup processes. Aside from that, you can also use this financing option to purchase or pay employees to continue running your operations.
However, if you’re starting as a new entrepreneur, lenders will depend on your credit score. This element reflects your ability to meet financial obligations and pay bills on time. If you can secure a high score, you might be able to secure expansion loans for your company. For additional information about obtaining a good credit status, click here.
On the other hand, a bad score might make it impossible for you to raise funds because lenders won’t trust your ability to pay off debt. So, if you want to know the ways personal credit may affect your company, you can refer to the list below.
1. Loan Application Approval
When applying for a loan, lenders consider your credit score as one factor in determining whether they’ll approve your application. A good score indicates that you’re responsible with money and will likely repay any debt obligations on time. A lousy score suggests that you have trouble paying off bills on time and could be a riskier borrower.
That said, here are loan application approval elements that personal credit can affect:
- The Amount Of Money You Can Borrow: Credit scores are used by lenders to determine how risky it is to lend money to specific individuals. Those with high scores are considered less risky and therefore allowed to borrow more money than those with low scores. Thus, if you can maintain a higher score, you’ll be able to generate an immense amount of debt.
- Interest Rate: Lenders may offer you low-interest rates if you have excellent credit and apply for a mortgage. This situation happens because they’re less concerned about risk than lending to borrowers with poor or limited credit histories. On the other hand, if you have poor credit, lenders will ask for higher interest rates on their loans due to the increased risk of granting you loans.
- Financing Options: Your credit score also affects which mortgage financing options are available. For instance, a borrower with excellent credit scores may qualify for lower down payment requirements or better interest rates through loan programs. Alternatively, an entrepreneur with a lousy score might not be eligible for these programs, which could result in delayed closing dates.
2. Employee Retention Rates
A great way to build loyalty among employees is by showing them that they’re valued as individuals and part of an organization with integrity. When they see how much effort goes into maintaining sound personal finances, they’ll feel more secure about their financial situations. As a result, they’ll feel stable within their jobs, encouraging them to stay within the company.
So, if you’re an entrepreneur with a poor personal credit score, it will be harder for you to hire employees. This incident happens because most banks require personal guarantees from owners before they approve any loan or line of credit for their businesses. In turn, you might not be able to attract top talent that might otherwise consider working at your company if they knew you prioritize money management.
3. Insurance Coverage
Insurance is vital for your company because it protects it from financial failure that might lead to bankruptcy. Your coverage may give you financial stability in fires, theft, vandalism, or natural disasters. Similarly, this safety net can also help you shoulder the injuries customers suffer as they use your products to avoid severe legal actions.
Insurance companies look at your credit history to determine whether you will likely pay your bills in full and on time. Your score will also help them decide how much they should charge you for coverage. So, if you have a bad credit score, you might generate higher premiums and deductibles, while a good one can mean lower rates and additional protection.
4. Commercial Space Rent
If you’re renting out a building to operate your company, you’ll have to cover the expenses that come with it. Besides rental fees, you also have to pay your employees and energy bills that keep your operations running. Unfortunately, you might face store closure or even bankruptcy if you don’t have enough money to cover these costs.
When renting out an office, landlords will check your personal credit report before leasing it out. This document provides insights into how responsible you are and your financial capability to pay rent on time every month. As a result, these insights allow them to make informed leasing decisions, which include the cost and security deposit fees.
Key Takeaway
When running a business, generating funds is a critical component. Thus, you must maintain an excellent personal credit score to gain the trust of lenders and your landlord. Once you do so, you might earn enough monetary funds to grow your company in the long run, which can increase your revenue.
