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Any entrepreneur knows that access to growth capital can be tough to come by in the small
business world and, hopefully, you�re already doing everything you can to keep your business
credit top notch. However, a lot of entrepreneurs are not aware of how important it is to also
keep your personal credit at its best and here�s why:
Even if you followed everyone�s advice and started a company as an LLC or corporation
so that you would be legally protected as an individual from what happens to your company
and you�ve done the right thing and kept your business and personal finances completely
separate - congratulations, you�ve done the right thing - but you�re likely still
going to need to provide a personal guarantee on any loan your small business gets.
What the heck, why do I have to do that? you ask. Isn�t the whole point of keeping things
separate to protect your personal assets?
That�s one of the major reasons, yes, and I feel your pain. But let�s look at it from
the banker�s perspective: You own a company with very few, maybe even only one shareholder
or owner. That company is completely separate from you and your personal assets, yet you
control what goes on with the money and other assets in that company. So, from a banker�s
perspective, what�s to stop you from opening a business, getting a loan, transferring that
company money over to yourself as an individual (through paying yourself an exorbitant salary
or some other means) and then filing for bankruptcy with the business and not paying back the
loan? Nothing, technically, except, hopefully, the fact that you�re not a fraudster. So,
the bank asks for a personal guarantee.
This is where your personal credit comes into play: because the bank wants a personal guarantee
from you for the loan, they�re going to check your personal credit and you�d better
be able to meet their minimum standards or you�ll be denied the loan, or at least end
up paying more than you need to in interest.
So, as you move forward with planning your business� growth, remember to take into
account your personal credit as part of the planning process and try to keep your personal
credit in tip top shape.