The inflationary environment that small business owners are encountering right now, means that their businesses are spending more for everything and this has a direct effect on credit approvals. Nearly half of small businesses (45%) identified rising costs as the biggest challenge facing them today. Business owner personal credit usage is compounding the ever increasing ‘credit crunch’ for small businesses.
If business owners aren't passing on these increases to their customers, they will soon see their businesses making less money. It's a notorious fact of running a small business, that when business profit margins are narrowed, owners don't pay themselves as much as they have been, or for that matter, don't increase their salaries. This means that the business owners load up their personal credit cards when they don't continue to pay themselves their accustomed amount -relative to inflation.
Why am I mentioning this? The lending environment right now is extremely tight for small businesses and credit worthiness comes to play in this. Why is this a big problem right now? Businesses applying for commercial credit for normal working capital needs and for expansion are being denied, not necessarily for the underwriting guidelines of the business, but because the personal credit scores of the owners are suffering. This widens the credit gap for small businesses to access funds for their businesses.
The solution is for business owners to ‘make more money’, which is much easier said than done. But to also account for their personal financial matters as it relates to their personal credit scores.
Paying more attention to paying down personal credit lines, instead of keeping cash in their small business checking account, may better serve them. Especially if they are seeking business credit in the current or near future.
If you own a small business and want guidance on how to obtain the most affordable capital for your business, request a quote here.
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The Federal Reserve data shows surging credit card and auto loan delinquencies among younger, lower-income borrowers, signaling heightened financial stress even as total household debt rises.
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