Knowing the difference between your personal credit and your business credit

For most small business owners separating themselves from their business can be a little tricky – especially because they are the business. However, it is important to have a distinction between the two and keep your personal credit separated that of your business’s. This is because if ever, your business ran into some trouble, individually you can steer clear of some liabilities. More so, investors look at the two entities separately. The business credit score is likely to be adjudged with more scrutiny that your personal credit score.

Let’s further rationalize this.

  • Personal Credit Score

A lender will evaluate a business credit score and then evaluate an individual. Your personal credit score will decide whether or not a bank or a financial organization will offer you credit, and how much credit will be offered to you and on what terms – whether on APR or a requirement of a collateral. While some organizations are willing to pardon certain areas on the score, one is constant – the higher your score the better.

  • Business Credit Score

A business credit score is also referred to as a trade or commercial credit score. A financial organization will scrutinise the business credit score as the first point of evaluation to judge whether your business is eligible for any form of small business financing. Business owners need to understand that the higher the score, the better the chances of negotiating the terms that you can avail a business loan on. While personal finances may be erratic, business finances need to be in order – one more reason to separate the two.

  • Realizing the difference

With an estimated 99.95 percent of small business owners and entrepreneurs opting for business loans and some form of small business financing, knowing how to prepare your business for a loan application is a must. Financial organizations may excuse defaults that individuals make, but a default by a business is unlikely to not raise a flag. Therefore, separating the two is a prudent practice.

  • Availing a small business loan

One of the most required documents by any financial organization that will extend a small business loan to an entrepreneur is the credit report. The credit report has several pieces of information that establish the nature of the business and other important details. Separating your personal credit score from your business credit score can lead you to avail small business financing better.

  • Drawing the line

A business credit score helps you in separating your business from your personal finances. Agreed that most small business owners use their personal finances to fund their businesses, and while it is acceptable to have certain links between your personal finances and your business finances, it is not advisable to merge the two or let the be one and the same in the long run. Once your business gains a little stability, try and segregate your personal finances from your business finances to avoid any liabilities on the business or yourself.

While it is difficult for most businesses to keep their personal credit and business credit mutually exclusive, it is important that practices are put in place to safeguard both.