Thinking About Financing Your Business On Credit? Guest Post by Tisha Kulak

Opening the doors for the first time on your new business is an exciting time but there is so much that goes on behind those doors way before they can be opened. A key component of a start up business is financing. You can’t expect to go far if you don’t have the money to get there.

Getting Started

Long before you initiate applications for business licenses and you begin to pick out office furniture, you need to start saving cash. Most resources say you should have put away at least 6 months of living expenses before going solo. This helps to eliminate some of the pressures of making ends meet while trying to get your business off of the ground. Financing your business can come from a number of sources, including yourself, family and friend investments, professional investors, or business loans. Credit cards are also used as a source of financing, but it that a good choice?

Getting Personal

Small business entrepreneurs often have to put their own personal assets on the line to get things moving forward in their company. The personal credit history of a business owner will play a very important role in what your business will be eligible to receive, not just for credit cards but for investors, loans, banks, or basically any other form of financing besides personal or family and friend contributions. Before even looking into sources of financing, you need to take a look at what your credit reports says and understand what your credit score means. If your credit score falls below 640, it would be in your best interest to work towards increasing the number. A simple way to do that is by making on-time payments for all of your bills for a consistent 3 months. You should also analyze your credit reports and check for inaccurate information.

Using Credit Wisely

If your credit score is not that strong but you still have a few credit card accounts, you must be very cautious about how you use them for your business. Try applying for a separate credit card that has been designed especially for small business credit. These cards often offer small business owners reward advantages and other incentives related directly to the needs of small businesses. If you are approved for the card, make it a priority that you do not spend carelessly with your fresh business card but rather think of it as a resource for dire emergencies. Do not plan on financing every aspect of your business with a credit card or you are likely to go out of business before the doors even open and still be left with a mound of bills you can’t pay.

Spend Less Than You Earn

Essentially, you need to finance your business with the cash you have saved or by means other than credit cards. Company cards and any purchase or expense that is made should be done only after careful consideration and the knowledge you have a concrete plan for paying off the debt. The same rules need to apply to your personal financing as well because it will influence your business affairs. Simply put, don’t spend more than you can pay for if you want to stay out of debt, whether it is business or personal.

Change Your Business Structure

If you find that you would like to initiate a complete separation between business and personal finances, you will need to change the status of your business from a sole proprietor to a Limited Liability Company or a Corporation. Until you change your business structure, you will be entirely responsible for all of the finances in your business and personal life.

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Tisha Kulak is a writer for Creditorweb.com, where she writes about credit card offers, business credit cards and responsible credit card use.

(image: Newscom)

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