Starting a business with unpaid personal debt is not impossible, but it’s not easy. If you want to start a business, the best way to begin is to get rid of your personal credit obligations. Since starting a company requires that you are in a strong financial position, you need to eliminate any credit balances that can compromise the cash flow of the business.
The truth is, your personal debt should be separate from your business. But if your startup fund will come from a business loan, you need to prove that your personal financial position is strong and stable. Having a lot of debt is usually the opposite of a strong financial situation.
According to Entrepreneur, one of the challenges that business owners face is financing. Newcomers usually have a hard time getting capital for their business ideas. If you have a lot of debt, it can become a huge setback.
Since your business is still starting, you can expect that your income will not be consistent. At times, it might even be too small for you to use for your personal expenses. If you have debt, it can cause a lot of additional obstacles in the startup process.
You will be better off to get rid of debt first before you pursue your dreams of becoming an entrepreneur. However, if you feel like this is the right time for you to act on your dreams, then you need to take a different approach. It will be risky, but if you do it right, it will be very rewarding.
How to be successful in starting a business if you have debt
Starting a business can require a substantial amount of money. That’s a fact. And with your unpaid personal debt, it will not be easy to get the funding that you need. Not only that, but your flow of income will also be unstable. To keep your debt from compromising the success of your business, you need to secure your finances. Here are some tips that you can follow:
- Do not quit your job just yet. You need to make sure the business is earning before you resign so that your monthly income will not be compromised. You can even tap into the income from your day job to support your new business.
- Lower your overhead. One of the things that you can do is operate your business from home. This will help you lower the overhead expenses while you are still adjusting. You can keep a higher percent of the profit to help the business grow.
- Make sure your debt payments are not compromised. You do not want your credit reputation to compromise your ability to get finances for your business. This is why you have to keep paying your debts.
- Go online. According to Business News Daily, e-commerce startups will increase in 2017. You can choose to start an online store or come up with a blog to monetize. An online business is not as costly, and it is easier to run. You can also maintain your day job while managing an online business.
A business is a great way to boost your personal net worth. Do not let your personal debt situation hinder that from happening.
What are the effects of debt on your dreams?
We have mentioned how debt can influence your ability to pursue your dreams of starting a business. Hopefully, once you understand the negative effects of debt, you will be motivated to aggressively pay it off. Here are three ways that your debt can compromise your new business.
- It can compromise your ability to get a business loan. If you still have a high balance on your personal debt, that can affect the amount of business loan that you can borrow. It might not be enough for you to finance the needs of a startup company.
- It can negatively affect your financial management skills. This is mainly for those looking for investors. If you have a lot of debt, that can be a sign that you cannot manage your finances well. That might turn off potential investors from putting money in your company. You might fail to manage the business finances well.
- It can hinder you from getting into a good partnership. You might also have a hard time getting business partners, suppliers or customers. Some companies conduct a credit investigation before getting into a partnership with a business. Your credit records might influence their decision to be associated with your company.
According to Forbes, one of the reasons why a business can fail is because they “ran out of cash.” Debt is one of the reasons that can lead to this situation. Having outstanding debts can eat up a portion of your revenues. Once you begin to earn a profit, you have the opportunity to invest in your business but since you have debt, you are forced to use a portion of your earnings to pay it off. If you deal with your personal debt immediately, it will not compromise the growth of your business.
Benefits of eliminating debt before you start a business
It is hard to focus on growing your business while eliminating debt. However, if you want to increase the chances that your company will succeed, you should seriously consider working on it. Here are the benefits that you will get if you successfully pay off your personal debt.
- Lowers your cost of living. Having no debt eases the financial burden. It will keep you from feeling too stressed about any slow growth in business revenues.
- Allows you to start your business with a strong financial position. Any setbacks or delays in the profit of your company will not force you to resort to debt to pay for your basic needs.
- Helps you focus on starting the business. Debt can be a distraction. It is known to add to the financial stress. Instead of making growing your business your first priority, you have to think about the goals that you need to meet to afford your debt payments.
The truth is, debt is not bad when you use it for income-generating purposes — like a business. Most entrepreneurs find themselves using credit to keep their business operations smooth. If you have personal debt on top of that, it might be too overwhelming for you. This is why you are encouraged to minimize your personal debt before pursuing your entrepreneurial dreams.
