Starting a business may require a large amount of money for start-up and
working capital. A new business may need financing, yet has no financial or credit history. Lenders will often want to assess the character of the loan applicant based on the borrower’s personal credit history before approving a loan.
A borrower’s personal credit rating shows how an individual has handled credit payments both current and in the past. This is how a lender can measure the “character” of the borrower.
A credit rating or score is a historical record of debt instrument payments including:
- term loans
- lines of credit
- car loans
- cell phone accounts
- anything involving credit (e.g. credit cards)
A credit score also indicates if there have been any late payments or write-offs to bad debt. The credit rating will illustrate:
- How dependable you are at managing credit.
- If you pay your bills on time or miss any payments.
- If you have declared bankruptcy (this information remains on your file for six to seven years).
- Inquiries: How often and which companies have inquired about your credit history (applying for credit frequently in a short period of time may indicate that you are experiencing financial difficulties).
A poor credit history or no credit history may result in you being refused a loan or being subject to higher interest rates on your loan.
Ways to improve your credit rating
- Pull your own credit profile to ensure it is accurate and error-free. Contact one of the two major credit reporting agencies to request your credit information.
- Make regular payments and pay your bills on time.
- Pay at least the minimum balance on your credit cards.
- Consolidate your debts.
- Keep your credit card balances below 50% of your card’s credit limit.
To make it easier to obtain financing for your small business, make sure your personal finances are in order – it makes for a good impression on your potential investors and lenders!
One of the goals of the Centre is to empower small and medium-sized enterprises and give you the tools to achieve success. For more information about resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online at halton.ca/smallbusiness, by email at firstname.lastname@example.org or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter and find us on Facebook.