Beware Entrepreneurs! Your Personal Credit Score May Affect Your Business

Updated on: 03 Jan 2024 // 3 min read // Business Loans
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As a business owner, you must be a pro at managing your business finances and keeping your business credit score impressive all the time. However, are you aware that keeping your credit score in good shape is equally important for your business?

That’s true!

A bad personal credit score may have a drastic impact on your business plans and future loan eligibility, consequently preventing your business from reaching stellar heights of success. Hence, in addition to paying your bills and Business Loan EMIs on time, pay attention to maintaining a good personal credit score too.

Here are some ways in which your credit score can hamper the growth of your business:

1. Be Ready to Hear “No” for a Business Loan

Having a lower-than-required personal credit score can give lenders a strong reason to deny your loan request. A credit score is the most important factor that lenders consider to see how well you manage your finances and to judge your creditworthiness. Hence, make sure there are no pending Credit Card or utility bills and no missed or delayed EMI payments; else, forget about getting your Business Loan request approved.

2. No Personal Funding

Forget about Business Loans, you may even get a denial for finances from other sources when you need it the most. During financial dropdown, it could be difficult to keep your business going. You may require help from venture capitalists, investors or other such sources. And, to assess your business potential and repayment capability they will conduct a background check on you before considering investing in your business. At that time, your credentials, as well as your personal credit history play an important role. If you have a tainted credit history, be prepared for the rejection.

3. Pay More if Your Loan Request Gets Approved

There are some banks and NBFCs (Non-Banking Financial Companies) that may approve your loan request even if you don’t have an impressive credit score. However, they may charge comparatively high-interest rates to extend loan facility to you. At times, interest rates may be higher than the profit margin of your business. It is not advisable to avail business funding under such circumstances.

4. Risk of Losing Business Reputation and Relationships

Winning the trust of your customers, clients, investors and vendors is an imperative factor when establishing a business. Once your audience knows you’re not creditworthy, they might stop relying on your brand and start exploring other options. Also, your vendors and investors may start disconnecting from your brand. Today, when every detail about a business is available online, it won’t take long to conduct a background check on a brand and person associated with it. Financial downfalls and bankruptcy can put your business at the risk of losing reputation and may have a drastic impact on your business relationships.

5. Lack of Talented Employees

Nowadays, most job applicants research about company’s profile before attending an interview there. Nobody wishes to work for a company that has a tarnished reputation. Destroying your personal credit history can put the financial future of your company at stake and may reduce your chances of hiring some exponentially talented employees who would have taken your business to new heights.