Part of what’s a good credit score is managing business debt.
You have to learn when to borrow, and why…
Also, you should find ways to minimize and pay off debt – as fast as possible.
We’ll help you with that with the 5 tips below!
#1–Set a Loan Limit for Yourself.
That’s easier said than done. Because people like to be easy on their own self-rules.
However, we have one for you. And that would be…
Your Limit = Yearly Income.
If you make $30,000 per year, that’s your debt limit. And the more you make, the higher the limit…
Now, this limit doesn’t include what’s paid off. It only includes what you still owe to lenders.
And this allows you to take more business risks, albeit in a cautious manner.
What if My Yearly Income Fluctuates?
Good question. Because no business makes the same income every month.
If that’s your situation, then update your yearly income limit at the end of each quarter.
That way, you always have a concrete limit in-mind. And it becomes reflective of how truly profitable you are.
#2–Set EVEN LOWER Limits for Creative Projects.
One of the issues with “creativity and uniqueness” is that they’re hit and miss.
It’s a game of jackpot. 100 ideas might yield you nothing, with the next making you a billionaire.
And this makes creative projects very risky, which means you must borrow less.
For creative projects, drop that limit to ½ of your yearly income.
So again, if you make $30,000 per year, only take on $15,000 in debt maximum.
Wait – How Do I Define a Creative Project?
That would be anything that involves…
- An invention/innovation.
- Entertainment.
- Anything that’s heavily affected by individual skill.
If your business deals with core lifestyle needs (like real-estate rent), then you can adopt the normal debt limit.
Alternatively, if it’s something like a luxury diner, then consider it a creative project.
#3–Eliminate any Consumer Debt You Have.Basically, never support your lifestyle with borrowed money.
Your lifestyle should be supported by your business revenue.
If you consume with credit, you’ll end up in a vicious cycle that ruins your financial life.
Consumer Debt Affects Business Performance.
It make it hard to borrow for expansions or emergencies.
It becomes difficult to take risks. And even worse, it ruins your credit score.
With so much debt to manage, you’ll end up paying late at some point. And that harms your score.
In fact, part of what’s a good credit score is paying on-time.
So never use credit to pay bills. Only use credit for business.
#4–Negotiate With Lenders.
Your ability to negotiate depends on your credit score. The higher it is, the better your position.
So understand “what’s a good credit score,” and keep that fixed!
Other than that, your focus should be on the following…
- Lower interest rates.
- Extended Plans.
- Lower monthly payments.
Extending all the previous removes stress that can ruin your business performance.
What if They’re too Stingy?
They shouldn’t be, especially if you have a good score.
After all, a lender understands that you succeeding in business means reliable loan payments.
So it’s not just for your profitability. It’s for theirs too!
#5–Adapt to Unexpected Profit Seasons.Rarely does a business make a reliable income each month.
What you make fluctuates. One month might be good, and the other might be horrible.
For good months, save aside some of the profit for debt payment.
You don’t have to pay immediately. You’re doing so for the bad months, where you can then pay debt on-time, from your savings.
Why Paying On-Time Matters.
Because it affects your credit score.
If you fail to pay on-time, it shows up in your report. And it will for a few years (up to 6 years actually).
This includes many kinds of debt, from bank, to credit cards, and even bills!
So be sure to save up on the good months. Because you never know what the next will bring!
That’s a Lot to Apply…
It sure is, and we recommend you do it with someone’s help.
Most people hire financial advisors for that job. And you should do the same.
They’ll help you keep your debt in check as you grow your business!