<< BACK TO ARTICLES

HOW MUCH ARE YOU WILLING TO RISK FOR YOUR BUSINESS?

 

As an entrepreneur, you're hardwired to enjoy a greater level of risk than the average person. But, do you enjoy the thrill of business and investing so much that you're willing to risk:


  • Being hounded by creditors?
  • Declaring bankruptcy?
  • Being denied a mortgage?
  • Paying more than your fair share of interest on your loans?
  • Losing your house?

The hands-down biggest and most common mistake entrepreneurs make is using personal credit to finance their businesses. Common examples include:


  • Paying for business expenses with your personal credit cards
  • "Borrowing" money from your personal savings, checking, retirement or other investment accounts to “invest” in your business
  • Obtaining personal loans to finance your business expenses

If you've used one or more of these financing methods to fund your entrepreneurial ventures, I'm not surprised. Shockingly, many business-start-up experts recommend these methods for funding new businesses.


Their advice is well-intentioned … but nonetheless incredibly dangerous. The reason for not using your personal credit for business purposes is simple: You WILL destroy your personal credit. It's inevitable.


By using your valuable personal credit for business expenses, you run the risk of:


-Lowering your personal credit score. When you personally guarantee business-related financing, the lender will require a personal credit check. Every time an inquiry into your credit history is made, your personal credit score takes a hit. The lower your score drops, the harder it is to secure financing…especially financing with the most favorable terms.

-Reducing the amount of credit available for personal use. The more credit you have personally guaranteed for your business, the higher your debt-to-income ratio soars … and the less that lenders will be willing to give you for personal use. Signing that loan for your business could prevent you from getting a mortgage on the new house you plan to buy a year from now.

-Losing everything. When you use your personal resources or credit to finance a business, you chain your financial security to your company's success. If the company fails, you'll be left holding the bag … and your personal finances will sink along with your business. You'll never recoup the “loan” you took from your retirement account to get your business launched. Creditors will be calling you for payment. And if things get bad enough, you may have to declare bankruptcy.

To protect your financial security, don't use your personal credit to finance your business activities. Instead, take action to secure credit in your company's name.

<< BACK TO ARTICLES
RELATED ARTICLES