[The following is a guest post from Keith Tully. He has written various articles for Real Business Rescue. Tully has been writing for the past year, covering topics including tax, director liabilities, insolvency problems and improve business cash flow. Real Business Rescue is a team of Insolvency Practitioners that offer advice to business owners facing insolvency or needing help with financial situations.]
Business financing may be needed for many reasons. You may be starting a business from scratch and need a start-up loan or you may want to expand your business and need some financial help. You may just want a business credit card to help with small purchases for your company. Whatever the reason, you need to avoid the mistakes by following these simply tips when applying for your business finance.
- Don’t personally guarantee your business finance: You need to keep your business and personal financial lives separate. By personally guaranteeing your business finance, you will become personally liable should your business fail. If your business struggles, the money cannot be taken from personal accounts; as long as you acted within the law when the business started failing. You don't want to bankrupt yourself as well as your business.
This is especially the case if you are starting up your business. Many businesses fail within the first six months and you need to protect yourself. Another benefit of keeping the finances separate is that your business has the chance to build credit under its own name instead of yours, which will help you in the future.
- Make sure information on documents is consistent: inconsistent information is one of the big problems that stops businesses getting credit. Creditors view it as a way of avoiding problems or trying to cover a failure, even though the mistake may have been genuine. When you fill out your application forms for credit, make sure the information matches that supplied when you started your company and created the business account. If you are unsure, check the old documents to make sure the information is correct. This takes longer but is worth it to gain approval for finance.
- Check whether creditors will help your rating: not all creditors will report to credit agencies and help your business build its credit rating. While this could be beneficial should you default or your business struggle, it will not help those wanting a business to succeed and grow in the future. If you have credit that is not reported, it will make your business look like you have never had credit. This causes problems getting future credit and gaining great interest rates.
- Give it time to build your credit: while it benefits you to have credit, you need to build it slowly. This means applying for loans with a big gap and not taking out too many credit cards. Trying to build your credit will just do the opposite and make lenders think that you are struggling financially and running the business beyond its means; they are not going to want to risk loaning you more money. Building credit takes time and shows that you are a creditworthy business; allow it to take that time.
Help your business gain finance by following the above tips. Too many business owners make mistakes and become personally liable for debt after a business failure. Allow your business to build its own credit and keep your personal life away from it.
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