Everything you read says to keep your business life and business money separate from your personal life and money. But many business owners mistakenly believe that just maintaining this separation will take care of everything. And that's just not the case.
When I started my own first startup, I didn't have the best credit. In fact, it was really bad; I was in the mid 500s. I never realized how badly this would impact my business and the future of my company.
The problem is that your personal credit may also adversely impact your business even if you have done everything possible to keep it separate.
Here are eight ways where poor choices in your personal life can impact your business:
1. Inability to get business credit
If your personal credit shows late or non-payments, or you have a bankruptcy on your personal credit report, this information will show up and be available for business credit sources to review.
The assumption the financial company will make is that, if you can’t handle your personal credit, then how will you stay on top of paying business loans or maintaining any credit which might be extended to your organization? This may lead to multiple rejections in terms of bank loans and business credit card applications.
2. High interest on any loans
If someone does take a chance on you and offers you any type of business credit, then you will most likely have to pay extremely high interest rates on that credit. Those high interest rates will then drive up the monthly costs that you and your business will have to cover.
And that will eat away at profitability and the ability to reinvest in other things which may be essential to growing the business. Also, high interest rates may extend the time it takes to get these business loans paid off.
3. Zero, or very little funding interest
If you are at a point in your business where you are seeking an investor, like a venture capitalist, or even trying for help from a crowdfunding platform, you will be scrutinized and checked as an individual to better assess your ability to help deliver a return on anyone's investment.
If potential investors do a background check and see your personal credit is poor, their trust level in your ability to give them the return they seek will plummet.
4. Challenges with getting a lease
Like every other item on this list, whether it be a commercial lease or even a co-working space agreement, you may be denied because your personal decisions about money management reflect poor judgment, and others don’t want to take the risk on you.
Not being able to have a place to run your business can severely hamper your success and ability to grow over time.
5. Extra fees on overhead costs
From deposits on utilities to fees and assessments, your personal credit problems can drive up your overhead costs and slow business growth momentum by eating away at the bottom line. This might force you to find ways to cut way back in other areas that had been intended to stimulate your business development, extending the time it takes you to become profitable.
6. Tarnishing of your personal brand
Your personal brand can constitute a large part of the trust you establish with your target audience. However, thanks to the internet and numerous background sites, anyone can do a search on you and find out how you handle your personal life.
If people see a bankruptcy, or other personal or financial issues, they won’t cut you any breaks. Instead, they will assume you are a poor manager of money and that you won't be able to keep your business afloat. With a tarnished personal brand, you may find it very difficult to win back trust and establish the positive values you were trying to imbue your business with.
7. Trouble with starting relationships with needed vendors or suppliers
Suppliers and vendors will definitely want some credit checks and verification of your ability to repay what you are purchasing from them. Like investors, they will most likely be the most unforgiving about bad marks on your personal credit.
However, if the result is that you lack the ability to buy on credit from vendors or suppliers, you'll find it challenging to build and sell your products or implement your services to the level necessary to sustain your operations. Most businesses don’t have the cash flow to buy materials and supplies outright, causing those businesses to wither and die.
8. Loss of talent
Any talent you are prospecting to help develop your business further can also look you up on the internet and see if you have what it takes to go the distance. After all, these people are banking on the fact that they are joining a company that will sustain itself and deliver a paycheck as expected.
If this talent discovers you have made personal mistakes with money, they may not be confident that joining your company or sticking around will turn out well for their own financial needs.
If you have yet to start a business, wait to do so until you have worked out the problems on your own personal credit so that it reflects who you want to be: a wiser and more prudent business owner. Investors and suppliers are watching for those who are capable of repaying debt in a timely manner, balancing the books and reinvesting in the business.
If your business is already under way and your personal credit is still blemished, work on fixing those issues. Your business deserves a chance to thrive and be free of the strain of unnecessary fees and overhead costs, as well as benefit from access to much-needed business credit.