Let’s say you have been considering starting your boutique or bakery for quite a while now. You have gone ahead and saved up some money for your down payment. However, you do require a microloan to help fund your business project. You could be planning to stock or even manufacture a seasonal product. It could also be that you have to replace some of your business old equipment. All these business plans do require funding which you may currently not have.
Under such circumstance, taking out small business loans would be your best choice. You simply request for one from a licensed moneylender and are certain of repaying the instalments promptly. If you plan or have taken out a small business loan, ensure that you follow the below-given tips to help you keep your individual credit rating from crashing.
Think About The Effect Of Failing To Repay Your Loans
The guaranteed loans issued for SMEs do affect your personal credit rating. When things work out as planned, you are bound to see a positive effect on it. However, these business loans can disrupt your credit score, especially if you take out any additional debt, default on repayment or even fail to pay your instalments on time. In Singapore the banking institutions are will more probable to report your business loan to agencies compiling the credit histories than the licensed moneylenders. The records are not those restricted to your business financing.
When you hold business credit cards that have a personal guarantee, the credit card company issuing them will report any default and late payments. The late payment and non-payment get reflected in the annual accounts statements. If you are in the habit of making use of your personal credit card to extend cash advances or purchases for the start-up or new business, then you need to be cautious. This habit can have negative or positive effects on your personal credit rating depending on the manner in which you handle this credit line.
So How Do You Ensure That It Doesn’t Have An Effect On Your Credit Score
To ensure your small business loan does not affect your credit rating, you need to carefully look at how you have structured the small business status. You could also do what the other entrepreneurs have been doing and by all means possible avoid mixing business and personal accounts. Keeping your personal and business finances separate is a wise move. This is because your personal credit rating affects your whole life and it is a determining factor in a lot of other things such as owning property. You may consider making use of the following suggestions to help you reduce the negative effect a business loan may have on your personal credit score.
Make Your Business Its Own Legal Unit
In making your business an entity on its own, you will have completely separated your business from your personal finances. And this will also mean you won’t be liable for debt incurred by your business. But when you are the sole owner, it will be hard for you to keep your business and personal credit separated. As a sole proprietor, it means you have an unlimited liability, and it’s possible for you to get sued on a personal capacity for all your business debts.
Being a sole owner your potential creditors will most likely have to check both your personal and business credit history as well before lending you any money. Therefore, Instead of sole ownership, you may consider launching your company as a private limited business.
Get A Business Credit Card For Your Company
Take time to research on acquiring a business card that will not consistently give out your information to the credit reporting agencies. You can request for a business card (or even a personal credit card when you don’t qualify for a business card) and make sure you solely use it for all your business expenses.
When you use your personal card for some of your business expenditures, make sure you pay off the bills as well as cash withdrawals promptly. Failure to do so will only result in you getting a negative credit report. You can, however, protect your personal assets by taking out only small loans and paying them off on time at all times.
Think About Other Funding Alternatives
The good thing here is that times have changed and ways of funding a business have become more creative. Without relying on personal credit cards, offering assets as collateral for a business loan, or mortgaging property, you could tap into other funding sources. Do some research to find out whether you can use some of your investments, retirement savings plan, or the term deposits get a business loan. The good thing is that these loans possibly will not reflect on your credit report, therefore, will not ruin your general score.
The other funding source you want to consider include social lending and angel investors. Social lending you get a loan issued by a big number of people who have pooled their funds together. While angel investors are people who are interested in investing in small businesses as well as upcoming startups.
Most of these investors are former entrepreneurs thus they can offer very valuable business advice in addition to offering you funding. Even then ensure you have a solid business plan before approaching lenders for a loan.
Check With Authorized Moneylenders
When you decide on taking a business loan from a money lending company, make certain you know and understand the terms and conditions of the loan. Also read the loan contract carefully and ask for clarification when conditions are not clear to you. At the same time before you take the small business loan, ask the licensed moneylender what their policies on reporting business loans are. Be sure to work with a lender who does not report loans to credit score companies when they note the first signs of payment difficulties. Always take out loans from trustworthy moneylenders who don’t forward your information until all ways of loan payment recovery have been exhausted.