Monday, September 7, 2009
Mixing Personal and Business Credit, and How it can Affect your Future
By Adam Lindheim
A personal credit report holds information that reflects your personal financial decisions. On the contrary a business credit report are meant to reflect the transactions made in the name of the business. Personal credit reports have a wide variety of information that include; your social security number, spouse name and information, your employer, credit and loan accounts, delinquent billing accounts, payment information on all of your accounts, Bankruptcies, and tax liens, and financial judgments against you among the few. People that use this report include creditors, employers, insurance agents, lenders and others to determine if you are trustworthy in terms of financial responsibility. Banks, credit cards, and other lenders use the information to first decide if you can even receive a loan. Next they use your personal credit report to decide what kind of interest rate you will get. The better your credit report the lower your interest rate. Today new technologies are allowing banks and creditors to view your personal financial history in order to determine the likelihood of them giving you a business loan.
Jordan Peterson the Senior Vice President for business banking at PNC Financial services group says that traditionally business loans were considered separate from business owners credit reports, but an advancement in technology is allowing creditors and banks to do cross reporting on potential applicants. “There are business bureau repositories built by companies like D&B that many companies belong to now. They report business loan repayment history, and other members of that repository can look at it as long as they supply data to it,” says Peterson. This practice has been mainly applied to primarily to small privately held companies and startups whose owners are likely to be asked for personal guarantees to obtain credit. There has been no uniform policy created for this issue, it will all depend on the bank you get a loan from, and they type of reporting they do. Personal payment history has proven to be predictive of how likely a business is to pay back its loans, the bank really cannot separate an owner from the business because the owner drives the business”, Peterson continued on to say. Despite this new ability by banks there are ways to keep your credit work for you such as creating strong relationships with local bankers, where they can understand you and your business can really help out.
Jay Goltz of You’re the Boss produced by the New York Times believes credit cards can be an excellent tool add value to your business. Credit cards can increase cash flow, get cash rebates, and merchandise discounts and discounted airfare. Now if a small business owner uses credit to squash underlying problems with a business it can detrimental to the company. Credit cards are an important part of entrepreneurship, because it makes use of all the available cash, but the misuse of credit cards is not the cards fault, rather a lack of financial knowledge. If you are applying for a credit card, try to get under your business name, because it puts the risk on the company rather than you personally, which will make a difference if things go bad. If used properly credit cards are a valuable tool in the business, where as if it is used improperly they can make a bad situation worse.