When entrepreneurs are just starting out, often times he has to personally guarantee or co-sign for all business loans. This means that his personal credit, or the credibility that he has to honor his commitments of repayment, will be used to judge whether his business can get the new loans. In other words, the entrepreneur’s personal history is a precursor to jump starting the business’ ability to access new credit.
So what is your personal credit score comprised of? Your FICO® score is comprised of 5 main components:
- 10% – New Credit
- 10% – Credit Mix
- 15% – Length of Credit History
- 30% – Amounts Owed
- 35% – Payment History
As you progress and move forward leveraging your personal credit to improve your business credit and credibility, your business vendors and creditors will develop increasing confidence in your business’ ability to repay its debts. One of the main business credit reporting agencies is Dun and Bradstreet. When you look at your business credit report, there are 5 main factors that determine how credible your business is:
- Capability
- Character
- Communication
- Compliance
- Creditworthiness
What is your business could grow to the point of never needing to borrow money again? Wouldn’t this feel great?! One way where a business can get beyond the need for using a traditional creditor is to essentially become its own lender. The concept known as Infinite Banking can make this happen. With infinite banking, the business purchases a specially-designed whole life insurance policy from a mutual insurance company with a guarantee to never go down in value. The business over-funds this policy to the maximum amount allowable with after tax dollars. Over time, the life insurance cash value accumulates on a tax-free basis. This then allows the policy holder to take a tax-free loan against the policy’s cash value.
By improving your credibility over time, your credit will also improve along with it. Over time, as your business grows, these positive traits can be implemented to allow infinite banking to put you in a position where you can fire your banker and never need to borrow money again!