Starting a business may require a significant amount of money to cover start-up costs, such as equipment purchases or operating costs. If you do not have all the money you need, you may need to apply for a small business loan or find an investor. Since your business does not have a credit history yet, lenders and investors could review your personal credit rating to determine if you represent a good risk.
Your personal credit rating demonstrates how you have managed your current and past borrowings and payments and can be an indicator of your ability to make future repayments. A credit rating is an overview of your financial history that demonstrates:
- your reliability in credit management;
- if you pay your bills on time or if you fail to make payments;
- if you have already gone bankrupt (this information is kept in your file for six to seven years);
- which companies have consulted your credit history and how often (frequent credit applications over a short period of time can be indicative of financial difficulties).
A bad credit history or no credit history could result in the rejection of your loan application or the imposition of higher interest rates.
To improve your credit rating, you could:
- check your credit to make sure your profile is accurate and free of errors. Contact one of the two major credit reporting agencies to request credit information;
- make regular payments and pay your bills on time;
- pay at least the minimum balance of your credit cards;
- consolidate your debts;
- keep your credit card balance at less than 50% of the credit limit.
Keep in mind that your credit rating may change if your financial situation changes or if you improve your repayment habits. The Financial Consumer Agency of Canada offers a useful guide to help you better understand your credit report and credit score.
To facilitate access to financing for your small business, be sure to get your finances in order. Thus, you will make a good impression with investors and potential lenders!