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Personal Credit and Starting a Business

Q. I’m tired of working for someone else and want to start my own business.  What do I need to know right now if I want to start pursuing the idea of working for myself?

A. There are a number of good reasons to start a business.  Perhaps you have a great idea that will serve an unmet need. Or you have a product that is far better off than anything on the market.  Maybe there is a niche market you can serve. Or maybe there aren’t enough providers for the current population. 

Starting your own business is a challenging and rewarding experience.  It takes far more work and planning than most people realize, however.  When we look at successful business owners, we tend to see the benefits they enjoy. But what we don’t see is all the long hours, hard work, and money that it takes to start and grow a business.  

To succeed in business, you need more than the desire to stop working for someone else.  You need passion, drive, and a commitment to developing a new set of skills. You need to differentiate yourself from your competition and create a sound business plan. It will take plenty of patience and planning, too, since it takes time to build a business.

It usually takes a few years for a business to establish its own cash flow, so that it’s able to generate enough revenue to cover its expenses, including enough money to make a loan payment.  In some cases, people take out a loan to start their business or to purchase a franchise or an existing business.   

Your personal credit is very important and will affect your business, but not necessarily from the beginning of your venture.  If you start small and pay as you go, you should not need to borrow money right away for your business.  As you grow, however, you may need to borrow money for inventory, supplies, or additional space. 
When you do choose to borrow money for your business, you will be borrowing with your personal credit. This will influence whether you get the loan or not, and if you do get the loan, at what rate.  You’ll also need to provide some form of collateral to get a business loan and have the cash flow to be able to make the monthly payment. For many borrowers, this collateral comes in the form of their home, since it is often their largest asset. But offering your home as collateral can be a risky move. If your business fails, you could end up losing both your business and your home.

When seeking a business loan, seek out a traditional bank or credit union. Be aware of alternative lenders that are willing to grant you so-called easy loans that come with high rates of interest.  As a new business owner, one of the biggest challenges you’ll face is learning how to manage your cash flow. If you’re stuck making large payments for a high-interest loan, you will crush your cash flow, which will make it difficult to continue running your business.

The learning curve for business ownership often follows a wide arc. Still, with time, research, a good idea, dedication and persistence you can realize your dream of working for yourself.

Bonnie Spain is the executive director of Consumer Credit Counseling Service of the Black Hills, a United Way member agency. For more information, email

The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.

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