Being an entrepreneur has many learning curves, from fun to financial. We are here to give you the lowdown on the tricky world of credit.
What is the World of Credit?
Your credit score is the number that credit bureaus give you. The higher the score the more eligible you are for credit or ‘creditworthy’. Credit companies look at your previous finances, what you have paid for and repayments you might have missed. This enables them to decide your score. If you have a high personal credit score you are more likely to be allowed to take out a loan or a credit card.
You can also easily check your business’ credit score. This is important, if your business is a registered company, it will have independent finances. This means an independent credit score. Many credit companies, banks and loan companies have a lot of help out there to deal with business credit.
How Can it Affect You?
The world of credit can feel a little bit like a minefield, especially if you are just starting out in business. It is important to always separate your finances, personal and business, even if you are a sole trader. This makes submitting your taxes far easier and can highlight your taxable deductions. It also means that your personal credit score does not get affected if you take out business loans or have a business credit card.
If you take out a business loan, it does not affect your personal credit rating. There are many out there that offer a lot more money up-front and longer repayment schedules.
If you are a sole trader, it can be difficult to get a business loan. It is not impossible, but sole traders are often deemed as ‘high risk’. You can get personal loans, which are allowed to be used within your business. Some lenders don’t like this. They can legally ask for you to pay back the entire personal loan if they find you are using it for business purposes. You must be open and honest with the loan providers about how you intend to use the loan money. Some will be fine with you using it for your business, so shop around.
Getting short term loans from a UK direct lender can be an option if your business’ credit score is poor. These types of loans are only designed to be used in an emergency, when the expense is unavoidable and cannot wait. You would have to take them on personally rather than as a business, so it does entail a higher risk should you be unable to pay them back. You should always check the annual percentage rate (APR) before going ahead with any loan.
How Can Finances be Managed?
Managing your finances is the major step towards benefiting from the world of credit. There are many applications out now that can really help entrepreneurs build their credit score and observe their finances through detailed reports and helpful advice.
If you build your business credit score and are always careful to be certain you can pay back loans. The world of credit can be a positive place. With new helpful software coming available each day it is modernizing the credit world and making managing it much easier.