It’s true that many people are still confused about the consumer credit system. What is more surprising is that a lot of entrepreneurs are still perplexed about how the business credit system works.
In this blog post, I will be sharing with you the common business credit myths that you need to finally debunk.
Let’s start with
Myth #1 Business Credit is the same as Personal Credit
This might seem too good to be true, but actually, it’s an outright myth that’s been believed by many business owners. To put it bluntly, both credit systems are similar. However, there are just some differences that can have an impact on your business.
As a primer, the consumer credit system has been shown to be fairly anti-consumer. Oftentimes, the credit system works against the consumers. It is highly prone to mistakes and tends to resist any effort to correct the mistakes by consumers. In one instance, when a credit bureau lost in court, they refused to remove incorrect information from the consumer’s credit report. On the other hand, the Business Credit System is different. It supports both businesses and consumers and is not prone to mistakes. If there are any mistakes, it can be easier to correct them.
Myth #2 It’s Just Okay to Use Personal Credit In Your Business Instead of Business Credit
This myth is obnoxious it can lead to serious problems down your entrepreneurial journey. It’s just too risky to use your personal credit for business purposes. By doing that, you’re limiting yourself to the resources available to you and your business. And the outcome can be negative. Just think when your business credit needs exceed the capacity of your personal credit. Eventually, your personal credit will be limited because you’ve tied it up to your business. Using your personal credit for your business is not a good idea and practice.
Myth #3 Personal Credit and Business Credit Are No Way Related to Each Other
We already know that using your personal credit for your business is not a good idea. However, these two are related and can’t be separated like two different entities. Personal credit and Business credit are related to each other.
Usually, when a person is applying for business credit, the person must provide a personal guarantee for the business credit loan. When providing a personal guarantee, the company that’s extending the credit will not only check the person’s business credit, they will also check the person’s personal credit history.
While the business account will not show up on the personal credit history report, the personal guarantee could highly affect the personal credit especially if the business fails to fulfill its obligations. With careful planning and smart use of personal credit, you can avoid that scenario.
There you have it—the top 3 myths that are still plaguing entrepreneurs until today.