Using the Business as Collateral on a Loan Versus the Owner's Personal Credit

If you already have a well-established small business with a good track record and are in need of a loan for expansion or any other reason, such as business debt financing, you will want to avoid using personal credit to secure that loan and, instead, use the business and its credit as collateral. This is a good idea for several reasons. Number one, if your personal credit isn't as good as it could be and using your business as collateral could give you a much better chance of being approved for a small business loan, or a better chance at being approved for a loan for a higher amount.

In addition, establishing and building a good corporate credit history in this manner will help your small business in the long-run. However, if you use your business credit to apply for a loan and cannot repay it, it will reflect upon your business credit, leaving your personal credit unharmed. Therefore, it's a good idea to use the business as collateral rather than your personal credit whether your personal credit history is good or bad - either to protect your good personal credit, or to improve your chances of being improved for a loan if your personal credit is bad.
 
Not only is it good to use your business for personal credit protection and to help build up your business credit history even more, it's also helpful in maximizing the amount you'll be approved for in a business loan. With good personal credit, you may not be able to get as much out of a loan as you would with good business credit. For more information about using your small business as collateral for small business loans or business debt financing, please contact us.