The financial world is very different from what it was just a little while ago. It’s become increasingly difficult for many companies – especially startups – to secure a good line of credit.
Credit mistakes can lead to slowed growth, ruined reputations, and in the worst cases, business failure. These are five common mistakes that startups need to avoid to ensure the longevity of their business.
1. Mixing personal and business credit
It can be very tempting to use personal assets or credit cards to help your business get off the ground. It seems easier to secure a personal credit card than one specifically for the business, and you may think putting up a lot of collateral is a safe bet. However, this only puts you in a very precarious position if the business suffers, because any mistakes you make with one will impact the other.
2. Too much initial debt
While it’s often true that you must spend money to make money, this becomes a problem when startups spend blindly before seeing enough of a return. Not all debt is bad and some of it can’t be avoided, but it can get out of hand fast. Spend your funding wisely, thinking in terms of survival instead of getting only the newest and best gadgets and office space from the start.
3. The wrong credit from the wrong company
Some creditors won’t approve a business credit card without requiring a personal credit score and personal guarantee on the line of credit. In this case, you haven’t actually gotten a business credit card, just a personal credit card with the company name on it. This kind of credit has all the potential pitfalls of mixing personal and business credit.
4. Not paying bills on time
Like personal credit, a business needs to maintain a good credit score to secure more financing in the future. Unfortunately, too many businesses push their credit to the limit, only pay the minimum balance, or completely miss the payment date. Paying your bills on time will establish you as a safe investment for creditors.
5. Taking the wrong advice
When starting a new business, a lot of unqualified people will tell you the “right way to do things.” You’ll often get advice on how to get a line of credit for your business, minimize your payments, and even be told to get a larger balance than you might be qualified to receive. Don’t listen to them. Running a successful business means seeking out professional advice and developing long-term credit plans that’ll provide the most benefit for your individual situation.
Connie Solidad is a financial counselor for Consolidated Credit. She loves to help businesses and clients manage their money more efficiently. When she’s not busy helping her clients, Connie loves to be at home or play outside with her two dogs Pixie and Trixie. Consolidated Credit provides financial services including debt management, debt counseling, & credit help for those looking to improve their financial well-being.