Getting the Balance Right Between Business Credit and Personal Credit
January 26th, 2017
by Steve O'Connor
During the initial launch phase of your business, it's common to have little cash. You might have plenty of money on paper in the form of unpaid invoices, but that doesn't help you make payroll this month.
Credit is what helps fill the cracks until the income arrives or you can turn inventory into dollars. As your business ramps up, it's tempting to use your personal credit to help finance some of those business purchases, but you need to be very careful about how you handle credit.
Keep Personal Finances Personal
If your business needs credit, it's important to find a separate credit line for the business. Using your personal credit to guarantee the business credit can have lasting consequences if the business fails. Business financing is available, so don't trap yourself into using your personal assets to guarantee business debts.
Get a Loan
Instead of pulling out your personal credit card to cover a business expense, visit your bank for a business loan. While banks have tightened up the regulations on business lending, 27 percent of business owners still manage to land a loan, which boosts early operations and allows you to expand rapidly. If the bank denies your loan, check with the U.S. Small Business Administration. They have several loan programs, including loans for restaurants. Plus, their grants don't require repayment.
Apply for a Business Credit Card
A business credit card can offer a lot more flexibility than you might think. While a credit-card company will likely run both personal and business credit scores before making a decision, a strictly business card removes personal liability. Also, business cards often have more favorable terms. You might be able to defer payments or get discounts on early payments. Some credit cards offer extended payment options for large purchases, allowing you to avoid the loan process.
Take a Capital Advance
Many small business owners prefer the convenience and speed of an advance. The application form is short, and turnaround on an application is typically days.
A small business advance can help you turn future revenues into cash. While the fees associated with an advance will be higher than with a bank loan, you will benefit from the ability to access the money immediately, which allows your business to continue to grow.
These are some of the most common ways to raise cash in a hurry, but there are dozens more. Alternative options for business funding include angel investors, venture capital, crowdfunding and micro-loan companies. You might invest cash directly into the business, but avoid using personal credit for business purposes.