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Will My Personal Debt Hurt My Small Business?

Since the financial crisis, getting credit for small businesses has become much more challenging. Not only are lenders for businesses with few assets fewer and far between, but they also now usually require small business owners to personally guarantee their business credit and loans. While some credit access does still exist for small business owners without a personal guarantee, if your business is less than two years old or its annual revenue is less then $1 million, you probably will find yourself excluded.

This means that most entrepreneurs will be personally assessed for creditworthiness, rather than the business itself. Unfortunately, this can pose a problem for many debt-ridden people, as it can affect your access to further credit. Since all banks will be looking to your personal credit score to determine whether you would be a good candidate for a loan, the portion of your credit score determined by current debt level can be a hindrance. Furthermore, if your business is new and income is not high yet, the balance of debt versus credit will be thrown even further off balance.

How to Minimize the Effect of Your Personal Debt on Your Small Business

While a large amount of personal debt can diminish your chances of getting a personally guaranteed small business loan, there are three things you can do right away to minimize the effect of your personal debt on your small business.

  • Work with a business partner. While your personal debt burden may be large, it will matter less if the credit is borne by two or more business partners. Similarly, in the event that the business goes under, your personal liability will be mitigated.
  • Pay down current debts as much as possible before applying for business credit. If you need a large line of credit to grow your business, you may need to prioritize paying down current debts in order to improve your credit score.
  • Don’t sacrifice or scrimp for your business by missing personal loan payments. This only hurts your credit score. For the sake of your business, you need to keep all personal payments current.

Although these small steps are only the beginning, they can go far towards getting your business the finances it needs to thrive. While your personal debt can make getting a small business loan more challenging, it is not an insurmountable challenge. With the help of experienced debt professionals, you may find creative solutions that will help you flourish. If you are struggling with personal or business debt and do not know what to do, consider talking to a consumer law attorney. At Luftman, Heck & Associates, we help people from all over Ohio find legal solutions to debt issues. Consider calling us at (888) 726-3181 today for a free consultation on your particular situation with an Ohio consumer law attorney.