The perils of personal finance and new enterprise

Entrepreneurs often have bright ideas that may be key to growing their business or starting up a new one. This idea may offer a perfect solution, with lots of potential customers to market to.

However, even if you do all your homework by researching market demand, competition amd pricing, and put in the required effort, it is no guarantee that your business will get off the ground.

Business failure occurs for many reasons, but may not be because of fierce competition or the deteriorating economy. It may be for one reason: financing all company expenses exclusively with personal credit.

The danger lies in maxing out your personal credit- and that's precisely what you risk every day when you make your business's financing ability completely dependent on your personal credit capacity.

It's called economic dependence, and it means the success of one thing depends on the success of another. And it's a recipe for failure.

In other words, anyone can start a business using his or her personal funds, but at some point the business will need additional capital for things like new equipment, development, payroll, marketing, inventory, and other expenses.

If you are relying on your personal credit to finance all of your company's funding needs, you are economically dependent. You're hoping your own credit  will support the business, but the fact is your credit capacity has limits.

The solution is to spend time establishing business credit so your company can obtain the financing it needs based on its own creditworthiness- not yours.

Did you know that business credit has 10 to 100 times greater credit capacity then personal credit?

When you use personal credit to apply for business financing, your mortgage, auto loan, personal credit cards, and even student loans will impact the amount of credit your business will qualify for. This is not the case when you apply for financing using your corporate credit file.

By establishing corporate credit you truly get to leverage the power of your business. Your company credit reports  will include your business information, banking relationships, payment history, sales revenues, assets, and financials.
As a result, creditors and lenders can base their credit decisions on the strength of your company's credit files- not your own.

Best of all, as a creditworthy company you can expect much higher credit limits. Major credit card companies like Visa and MasterCard offer high-limit credit cards for business cardholders.

Don't let the threat of economic dependence put your start-up business at risk. Start establishing a creditworthy company so you can obtain the financing you need without putting your personal credit and assets at risk.

By Marco Carbajo of AllBusiness.com

Learn more about small business issues- Visit AllBusiness.com

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