Lenders may look at your personal finances when approving a small business loan. This includes your personal credit score, assets, and debts, as your ability to manage your personal finances reflects your capacity to handle business finances.
5-Step Action Plan to Get Your Personal Finances in Order:
- Check Your Personal Credit:
Just like your business credit, your personal credit matters. Ensure your credit score is up to date and check for any negative marks that could affect your loan application. Free services like Credit Karma can help. - Pay Down Personal Debt:
If you have high-interest personal debt, focus on reducing it. Paying down credit cards and loans can improve both your personal credit score and your overall financial standing with lenders. - Review Your Assets:
List your personal assets, including savings, investments, and property. These assets can serve as collateral for the loan and may help ease the lender’s concerns about your ability to repay. - Create a Personal Budget:
A clear personal budget shows that you can manage your finances responsibly. By maintaining a budget and avoiding overspending, you demonstrate financial discipline, which is critical when running a business. - Separate Business and Personal Finances:
Ensure that your personal and business finances are separated. This will not only make your loan application cleaner and more straightforward but will also help you manage your finances more effectively.
Getting your personal finances in order shows lenders that you are financially responsible and capable of managing both personal and business obligations. Take time to improve your financial standing, and it will pay off during your loan application.
