Recently, I received an inquiry from a small business owner about how to get business financing. They had just started to get their ducks line in a row, and came across a general misconception about what to do to get their business financing off on the right foot. So, in order to address this question, I decide to make this post. Now, I am no expert, but I do know that when it comes to small business financing, it must never be tied into your own personal credit. You must be able to secure business financing without a personal guarantee.
How Do You Get Business Financing Without a Personal Guarantee?
Now, you might be an extremely intelligent entrepreneur and pride yourself in your ability to do everything on your own, but when it comes to securing the financing your business needs to hit the ground running, don’t try and do it on your own. You must use a business credit advisor. This is just one part of your business that you must leave to experts – unless of course you’re an accountant.
So, to get started, your business must either be incorporated or a limited liability. If not, then your business credit will be tied into your personal credit. If your business is not incorporated or a limited liability, then any financial institution or bank that wants to lend you money will see the loan as a personal loan – and that carries heavy risk to your personal credit.
- First and foremost, make sure you deal with a business credit advisor
- Must be either a limited liability or incorporated
- Don’t allow your business financing and loans to be based on your own personal credit.
The above video explains the costs of capital and its impact on your bottom line.
What’s the implication if your business is not incorporated or a limited liability?
Understand that more than half of all businesses fail in the first year. While you may believe you’ll be one to succeed, are you really willing to put your own personal credit on the line? The fact is, if your business credit is tied to your personal credit, then if your business goes bankrupt, you go bankrupt.
Don’t plan to fail, but be prepared in case your business does and make sure to separate your own personal liability from your company’s liability. In addition, the interest rates on personal loans are much higher than on business loans, so by making sure you have your financing tied into your business credit, you’ll be able to benefit from a much lower interest rate on loans.
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If your business is not incorporated or a limited liability, then it’s nothing more than a personal loan
- Personal loans means if your business goes bankrupt, you go bankrupt.
- Business credit has lower interest rates than personal loans.
What is all this D&B stuff anyways?
To make sure you are dealing with the right business credit advisor, make sure they properly explain the importance of maintaining a good credit rating with Dunn & Bradstreet (D&B). They are other credit agencies, such as Equifax, but D & B is the most common. Whatever you do, don’t deal with those companies that promise to increase your D&B rating within months – they are frauds.Establishing business credit takes time, patience and the proper approach. Your business credit advisor will take you through the steps and explain the weighted average of your D&B credit rating report.
A good score on your D&B report, will help you get a much lower interest rate on loans, lower financing on credit lines, and better terms from your suppliers. Your business credit advisor will likely show you a graph similar to the one above.
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