Personal vs. Business Debt

Using personal credit cards and home equity loans or lines of credit to fund your business can seriously jeopardize your ability to secure business financing in the future. Your personal credit score and liquidity are major factors when seeking a commercial loan or mortgage. A good credit score demonstrates a history of making payments in a timely manner and sufficient equity in your home provides a financial cushion in the event of an unexpected event.

If you think you may have a need for capital to expand your business in the future, consider transferring your personal credit card balances to a business credit card or using a small business loan to pay off personal debt incurred from funding your business. There are a variety of business cards offering 0% interest promotions for 6 to 18 months.

In addition to lowering your utilization of personal credit card debt, many business credit cards will not appear on your credit report. This will increase your credit score over time and improve your chances of getting approved for commercial financing in the future. Another benefit of replacing your personal debt with business debt is that business credit cards and many small business loans can be refinanced with a long-term commercial loan. Personal loans and credit card debt is not eligible in many cases.

The key to securing capital in the future to grow your business is planning ahead and getting your personal and business finances in order now.

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