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Taking out a Personal Loan for Business? Here’s What to Know

Nov 2, 2021 | Personal Loans

It can be challenging for small businesses to get funding via loans while they are still in the conceptual phases. That is why many business owners are tempted to utilize their credit cards or take out a personal loan to cover business expenditures at various points during the year. 

While you may need to dip into personal funding options when your business is just starting out, it’s important to remember that it isn’t a long-term solution. Personal credit does nothing to help you create your company credit profile. In fact, as soon as you are able, you should look to build business credit as doing so will make it easier to get funding if and when you do need it. 

If you’re considering taking out a personal loan to get your business up and running, here are some things you’ll need to keep in mind: 

  • Remember That Personal Loans Do Not Build Business Credit

Establishing a solid business credit foundation should be a top focus during the initial few years of a company’s existence. Most firms start with a minimal business credit profile, which is understandable. If you continue relying on personal credit, however, credit bureaus and your creditors won’t be able to see how you’ve managed business credit in the past. As soon as you are able, begin building business credit and stop relying on your personal credit.

  • Build Business Credit Through Suppliers

Business credit is crucial for demonstrating your ability to be responsible with business loans. But how do you obtain business credit without a track record of business loans? One way is using trade credit connections with suppliers. Begin by creating a trade credit relationship with your suppliers. Complete reports to credit agencies and make all of your payments on schedule, as well. Over time, you will establish good business credit and be able to apply for a card.

  • Avoid Using Your Personal Cards For Business Purchases 

Developing and maintaining a solid personal credit score will almost certainly remain a lifelong need for many small company owners. Keeping this in mind, using your credit card to pay for company costs may not be the best option in every situation. Using up all of the available credit on a credit card might negatively influence your credit score. 

When you have more outstanding balances on your credit cards, which are often connected with company spending, it is not unusual for your score to suffer due to their influence on the ratio of credit available to credit utilized. That may be the case even if you make the necessary payment regularly every month.

  • Open a Business Credit Card

As soon as you are able, open a company credit account rather than depending on your personal credit. Invest the time necessary to build a good company credit profile. Consider it an investment in the long-term success of your company. A business credit card may be a viable alternative for small firms just starting and looking to build a better credit profile. Even though your initial amounts will likely be modest, they may provide you with the chance to show your ability to utilize credit appropriately, therefore boosting your credit profile over time.

Final Thoughts

In the real world, many entrepreneurs borrow against their homes’ equity, utilize personal credit cards or other forms of personal finance to get their firms up and running. You can do it quickly, and finance is readily accessible. However, the longer you depend on your credit, the longer it will take you to build a good company credit profile. The more difficult it will be to qualify for a small business loan in the future.

Do you want help in finding the best personal loans to get your business off the ground? You can always rely on us at Get Approved Canada. With our help, it can be easier for you to find the credit type you are looking for while finding the lowest interest rates and best payment options. Drop us a message today to learn more! 

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