When you’re starting a business, you may need to take out a loan. But does this affect your personal credit? Read on to learn more…
A business loan can be a great way for a small business to get the financial assistance it needs to grow. However, if you’re considering taking out a business loan, you may be wondering how it will impact your personal credit score. Here is everything you need to know about the relationship between business loans and personal credit scores.
Does A Business Loan Affect Personal Credit?
A business loan may affect your personal credit score, but it depends on the type of loan you take out. There are different types of business loans and how they affect your credit score:
1. Personal Loan – If you take out a personal loan to start your business, the use of the loan will appear on your personal credit report. Although this can impact your credit score, new businesses often have a hard time getting approved for a traditional business loan. As such, personal loans are used by many new business owners as they wait for their new business to establish its own credit history and get an official bank loan.
2. Line of Credit – A line of credit is a bit like a “personal loan” in that it’s based on the amount you borrow and how much available credit you have in your account. The difference between using a line of credit versus using your debit card or writing checks is that it adds an official record to your account. As such, if you use a line of credit to fund your business, the record will appear on your personal credit report.
3. Business Loan – With a traditional small business loan, like those offered by banks and other lending institutions, the lender typically only wants to hear about how much money you need and why you need it. They’re less concerned with how you plan to spend the money and more interested in whether or not you’ll be able to pay it back on time and in full. Therefore, as long as your bank can see that you have enough income coming in each month to make the minimum payment, they won’t care where all of your money goes each month.
4. Short Term Loans: If you take out a short-term loan to start your business, it’s possible that the lender will report the loan on your personal credit report. These types of loans can look very similar to a line of credit or a personal loan because they’re often secured by money in a checking account.
5. Partner Investment: If you have another person invest in your company with the expectation of earning a return, this will likely appear on their personal credit report and won’t affect your score at all. However, if they invest without any guarantee of repayment, the IRS might consider this an investment in your company and subject them to taxes as if it were income – which means the amount could reduce their ability to pay off debt or save money in the future.
How To Get A Small Business Loan
A business loan can be a great way to start or grow your company, but it may also affect the credit of both you and any co-signers. If you are considering borrowing money for your small business, don’t hesitate to do so. You don’t need to know how business loans affect personal credit in order to get one. You can visit a website or call a loan company to find out about small business loan options that are available specifically for new businesses.