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Using personal credit to get business loans

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When starting a business, obtaining financing for your business is one of the first things you will need to do. Many people turn to small business loans to help fund the start up costs of their business.

As with any loan, you will need to qualify first. Because your business is in its early stages, you will have to rely on your own personal credit to get a business loan. The following are some things you will need to know to get your personal credit ready to apply for a business loan:

Check your credit
The first thing you will want to do is check your credit to make sure there are no blemishes on it. If you know your credit has negative marks on it, you can dispute them if you feel they were made in error. However, remember that disputing negative items that are not in fact mistakes is illegal, and you could be charged or prosecuted. So make sure they are actually mistakes before you dispute them.

The process to disputing negative credit marks is lengthy, but well worth it if you can get them removed from your credit.

Pay down your debts.
If you have a high debt to income ratio, you may want to wait to apply for a business loan until you have paid off some of your existing debt, such as credit cards, car loans, or anything else you have on credit. The higher your debt to income ratio, the higher your interest rate will be. In some cases, you may have too much credit out already for lenders to give you more. So, pay off your lowest balance cards and cards like department store cards.

With your other cards, keep your balances low. If you have credit cards or other lines of credit, rather than closing them, keep the balance low (below 30%) or pay them off every month. This will keep your debt to income ratio low.

Don't open any new lines of credit.
If you want to apply for a business loan, make sure you are not applying for other lines of credit. Resist the urge to "save 10% today" by opening a credit card for a store; each time you do this, your credit suffers and the chances you will receive a lower rate on your business loan is lowered, as well as the chance of qualifying for one at all.

Pay all of your bills on time.
One of the best ways you can raise your credit score is to pay your bills on time. This is what lenders look at closely when determining whether or not to extend you a business loan. If you are forgetful when it comes to paying bills, set them up so they come out of your account automatically. Most banks have free online bill payment, and many credit card companies will do the same. This will ensure that your bills get paid on time and your credit stays in good standing.

It is difficult to obtain a small business loan. For that reason, you will need to make sure your personal credit is up to par. Paying your bills on time, lowering your debt to income ratio, and avoiding running your credit often are just a few ways you can improve your personal credit to get a business loan.

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