Corporate credit is important, especially with the current economical climate being so bleak. Whether you need a loan or a business credit card, there are mistakes than many business owners make. Before you start applying for credit, according to the Team at Real Business Rescue you need to understand these mistakes so that you can avoid making them.
Keep Your Business Credit Separate from Personal Credit
Banks will often tell you that it is in your best interest to personally guarantee your credit. It is in their best interests for you to do that, since it means they can gain from your personal accounts to claw back debt as well as business accounts. By keeping your credit separate, you are not personally affected should something happen to your business.
Businesses can fail. In fact, the majority of start-up businesses will fail within the first six months. If you take out credit to help your business but guarantee it with your personal account, you will be personally liable for the rest of the loan. This could lead to you losing your assets to clear the debt, including your home and car.
Always apply for credit under your business name. This will not just protect you personally but it also means that your business builds credit. If you are successful, it will help you gain more credit in the future, should you need it. The only personal information you should give is your name to prove that you are the owner of the company. Include the personal information of all directors to show joint ownership.
Inconsistent Business Information on Documents
Inconsistent information on various documents is a red flag for creditors. It could show that you are not being truthful about the information and that you are trying to cover up a failure somewhere. Make sure that the information you provide on the application form matches the information supplied when opening an account for the business and starting your company.
Lenders will need to verify the information and if they find inconsistencies, they will reject the credit. Before applying, check the information that you have supplied in the past and write everything down exactly the same. It may take longer at the start but it is beneficial to streamline the application and approval process to gain the credit.
Applying with Creditors Who Will Not Help Your Credit Rating
While there are tens of thousands creditors, they do not all report to a credit agency. They will not update your information so other lenders will see how well the business is doing. This then looks like your business does not have any previous credit and will hinder the chances of gaining a form of credit in the future.
Always look into the information that a creditor supplies to credit agencies to make sure that they will help your business build up a rating. After that, you will need to make sure you stick to the agreements, never go over your limit (if it is a credit card) and contact the company should there be an issue at any time – whether it is an issue with making a payment or a dispute on spending. This will help the business to build credit so you can keep your personal finances separate.
Trying to Build Credit Too Quickly
When you open a new business, you want to build credit under its name as quickly as possible. This will help you get the best interest rates and be approved for more loans in the future. However, building credit too quickly is more likely to hinder your chances. To lenders, it will look like you are living beyond your means and that your business is struggling to stay afloat. The lenders will be more worried that you will default on a loan and decline your application.
It takes time to build good credit for a reason – you are showing over a longer period of time that your business is a good borrower. While it make seem like a negative to you at the moment, allowing it to take the time it needs is beneficial in the long run. This also prevents you from going into bad debt and struggling to constantly make repayments should something happen in the future.
Building credit for your business is important. There are different forms of credit that a corporate business can gain. When it comes to applying, make sure you avoid the common mistakes that many business owners do. Keep your business and personal lives separate and allow it to take the time necessary to build good credit.
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