A new business often starts with a keen sense of determination and passion, but sometimes the launching pad is not that glamorous. For many, their business journey starts out of need due to a tough economic climate. With over 80 new businesses coming up every hour in the UK, there is bound to be an entrepreneur who was catapulted into business through financial hardship. With that in mind, it’s important to understand the relevance of a personal financial position and how it relates to business.
It Might Foil Funding Attempts
If you’re not looking to approach mum or dad for some extra funds to help get the business started, a bad personal financial record could prevent funding for the business. Banks and private investors can request clear credit records before they consider funding. This includes all the directors in the business. If the business has more than one director, the one who has a bad credit history could spoil the fun for the rest.
Lease Agreements, Equipment Contracts, and More Could Be At Risk
This is a tough one for business owners, especially those that need additional services in order for the business to start up or grow. Credit checks on the individuals could mean the difference in securing a premises at reasonable rates or not. It might entail having to fork out a few months extra for the deposit in order to secure the premises. When it comes to equipment, the party in the business with the clear record may have to look into individual contracts and carry all the liability. This situation is not ideal and could cause tension.
The Workaround for Prospective Business Owners
Luckily it is not all gloomy, as a workaround exists. According to AAA Credit Guide (http://aaacreditguide.com/credit-scores/what-is-a-good-credit-score) there are a number of factors that determine the credit rating of consumers. Sometimes, a poor credit score is not necessarily a reflection of a bad payment history. Instead, other factors such as high credit limits and balances, number of accounts, and number of applications affect the score. Those who find themselves in the position where bad credit is due to late or non-payments, still have a few options available to them.
Ensure there are sufficient funds to cover the operations of the business. This means taking a backseat to getting that new car or spending unnecessarily. This will ensure there is enough cash to fall back on in the slow months or in times of crisis.
Pay the overheads first and yourself last.
Work on clearing up that credit record every month. As the accounts are closed and debts are cleared, it makes it easier to motivate future applications.