The likelihood of a new business failing within the first five years is significantly higher than the chance of a marriage ending in divorce. Statistics show that 50% of businesses do not survive beyond five years, and by the ten-year mark, that figure increases to 65%, compared to a 41% chance of marriage ending in divorce. Financial issues are often the primary reason for both business failures and divorces.
Regardless of the industry, cash flow is vital for a business’s survival, acting as its proverbial lifeblood. Steady financing is essential to keep operations running while the business works toward achieving profitability.
Business owners generally find themselves in need of some form of credit. While some may have personal resources or obtain support from friends, family, or investors, others will require financing from the outset. For startups that need a significant initial investment, such as leasing a retail or kitchen space, small business loans may be necessary. Businesses handling inventory might opt for a credit line with vendors. Most business owners are advised to have a small business credit card. It helps separate business expenses from personal finances and provides a convenient way to manage costs during periods of low revenue. Additionally, top small business credit cards offer rewards for purchases.
A business credit card can facilitate small business growth by providing access to flexible financing and necessary capital. It enables better cash flow management, allows for prompt purchasing, and offers rewards that can be reinvested into the business.
Creditors usually require a personal guarantee or collateral when providing credit for business ventures. This means business owners must either offer assets as security against a loan or take personal responsibility for repaying debt, even if the business fails. Good personal credit is highly beneficial in this context, as a personal credit check is often part of the application process for business credit. A strong personal credit history significantly increases the chances of obtaining business loans, credit cards, or commercial rentals, often with favorable terms and higher loan amounts.
However, while good personal credit is critical for approval, business credit accounts typically do not appear on personal credit reports, unless there is a default on a debt with a personal guarantee. To build personal credit scores, it’s advantageous to maintain at least one personal credit card. Individuals struggling to qualify for a credit card might consider a secured credit card, which can be easier to obtain.
Using credit cards responsibly by paying them off in full each month can effectively build one’s credit history. Setting up automatic payments for small, recurring expenses and ensuring timely full payments helps establish a positive payment history and can lead to improved credit scores within about six months of consistent positive activity.