subject: Startup Business Financing:the Most Dangerous Threats Facing Your Efforts [print this page] An entrepreneur that I know had a remarkable business concept - the kind that keeps you up at night when you think of all the possibilities and opportunities that lie ahead.
It offered a perfect solution, with lots of potential customers to market to. He did all his homework by researching market demand, competition, pricing and so on.
He factored in the time and costs needed to get his startup business off the ground. He thought everything was done right, and he expected plenty of customers once the business was up and running.
But the business still closed its doors later that year.
No, not for the reasons you might think. It's wasn't the competition or the bad economy.
The business closed its doors because he was financing all of his company expenses exclusively with his personal credit and when his credit capacity was maxed out; there was no more financing available.
And that's precisely what you risk every day when you make your startup business's financing ability completely dependent on your personal credit capacity.
It's called economic dependence, and it means the success of one thing depends on the success of another.
And it's a recipe for disaster and failure.
In other words, anyone can start a business using his own personal funds, but at some point the business will need additional capital for things like new equipment, development, payroll, marketing, inventory, and other expenses.
If you're relying on your personal credit to finance all of your company's funding needs, you're economically dependent. You're hoping your own credit will support the business, but the fact is, your credit capacity has limits.
The solution is to spend time establishing business credit so your company can obtain the financing it needs based on its own creditworthiness not yours.
Did you know that business credit has 10 to 100 times greater credit capacity then personal credit?
When you use personal credit to apply for business financing your mortgage, auto loan, personal credit cards and even student loans are impacting the amount of credit your business will qualify for. This is not the case when you apply for financing using your corporate credit file.
By establishing corporate credit you truly get to leverage the power of your business. Your company credit reports will include your business information, banking relationships, payment history, sales revenues, assets and financials. This provides an in depth picture of your company's financial standing with creditors, suppliers, banks and leasing companies.
As a result creditors and lenders can base their credit decisions on the strength of your company's credit files not your own. Best of all as a creditworthy company you can expect much higher credit limits. Major credit card companies like Capital One, American Express, and Discover offer high-limit credit cards for business cardholders.
Don't let the threat of economic dependence put your startup business at risk. Start establishing a creditworthy company so you can obtain the financing you need without putting your personal credit and assets at risk.
Whether you are a start-up or an existing business, it's important in this economic environment to do whatever is possible to establish credit in the company's name. Start by putting a plan in place for your company and then take action as soon as possible.
