How to Balance Business Credit and Personal Credit

The personal credit of a small business owner is linked to his or her business credit. To put it simply, if your business goes under so do you. However, there are things that can be done to ensure an optimal balance between your personal credit and your business credit. The following suggestions will protect you from unnecessary personal debt and help you maintain a distinct separation between business and personal finances.

Keep Business Credit and Personal Credit Seperate

The easiest thing to do is keep your business and personal accounts separate. You should have business accounts and personal accounts, and the two should not overlap. Obtain a credit card for the business in the name of the business, not your own name. Do not use the company credit card for personal use. Likewise, do not use your personal card to support the business. This may seem simple, but blending personal and business accounts is a common mistake made by small business owners. Not only will keeping separate accounts protect you personally, it will also make filing your taxes easier.

On a similar note, pay yourself a salary and leave the company cash flow alone. It may be tempting to occasionally grab 20 dollars out of the company when you need it, but resist the urge. Taking money out of the business, even small amounts, will affect your cash flow. Lenders are leery of funding operations with questionable cash flow. This will increase your personal obligation on any debts that your business incurs. However, a stable cash flow makes your business a good investment and reduces the amount of personal risk you have to take in a business loan.

Be Aware of Your Business Credit

Most people are aware that they need to keep an eye on their personal credit. This same principle is true of business credit also. At the beginning, the connection between personal credit and business credit is closely linked, but, over time, a strong business will create its own credit. Be aware of how creditors view you and your company, and make any necessary adjustments to build a solid personal and business credit score. This includes selling off assets to pay loans on time.

Try to avoid taking business loans that you personally have to guarantee. This might not be possible in the early stages or if the company credit is less than ideal. However, you should be keeping tabs on your company's credit, so you will have a good idea about your chances of getting a loan in the name of your small business before you apply for one. Shop around and find the best possible loan that you can.

Do not ignore the book keeping. It is essential that you keep accurate business records. Doing so will help you identify mistakes and have an accurate picture of your business. Keeping your personal records separate will make this much easier. You will have to present your business records to lenders. A clear and concise picture of your company will increase your chances of obtaining the funds that you need for your business.

Build your Business' Credibility

Develop good working relationships with your vendors. Many vendors do extend a certain amount of credit to their customers, at least to the customers who are responsible about paying their bills on time. If any of your vendors report their accounts to the credit bureaus, your business' credit score will improve. However, even if they do not report their transactions, vendors can be excellent references.

Invest the business' money in assets that are a low risk such as property. Land will typically grow in value and most lenders see it as a good risk. Just make sure that you have a down payment worth about 20-30 percent of the value of the property. This type of financing is easier to obtain and will help boost your company's credit score.

Do not take your business account balance down to zero if you can help it. Remember that lenders keep an eye on cash flow. Try to have available funds on hand at all times. This does not mean that the amount has to be large or that you should pay a bill late to keep money in the bank. Simply limit unnecessary purchases in order to save as much money in the bank as you possibly can and still keep the business on track.

While you are responsible for the financial obligations of your business, using the tips in this article will help you strike a balance between you company's finances and your own. Not only will this balance protect your personal assets, it will also make your life easier and save you the trouble of trying to untangle your personal and business records. Building a strong business credit portfolio and staying aware of the financial situation of your company is essential to the success of any small business.

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