Q1 is a great time to reflect and set goals for you and your small business. However, many financial resolutions don’t make it to the finish line. That’s why we’re here to help! We know that with the proper small business resources and planning, you can reach your 2022 entrepreneurial goals. And what’s one of the most crucial parts of growing a business — especially during a pandemic? Building and maintaining a healthy credit score.
Fernando Ahumada, our V.P. of Lending, is passionate about helping entrepreneurs in New York State grow their businesses in ways that also benefit their personal finances. Below, Fernando shares: “The 4 Dos & Don’ts for Business Planning During a Pandemic:
1. Do Build a Rainy-Day Savings Account: Rainy day savings aren’t just for personal finances! Having savings set aside for your business is just as important. After you cover your fixed costs, set aside a monthly “savings cost” as your final fixed business expense. Just like you plan for your family’s unforeseen costs, plan for the unexpected. A business savings account can prepare you for slower business periods, for example, or prevent you from falling behind on any loans or credit card payments.
When business is slow or extra income isn’t flowing in, saving money for your business may seem impossible, but it doesn’t have to be. Fernando emphasizes:
“Save what you can without overstretching your business. Many small business owners don’t have a budget or regularly save money for their business. But it’s never too late to start. So, look over your plans for 2022 and think about how you can save extra cash each month now to avoid economic pitfalls.”
2. Do Cut Costs Creatively: As Fernando suggests, looking for every way to cut costs and save money now is essential. Is it a subscription you don’t use? Do you have equipment lying around that you can sell? It may not seem like much, but an extra $100-$300 a month can help you mitigate your small business costs in the long run.
3. Don’t use your personal credit to finance your business: A good credit score is essential to expanding your business. But charging your business expenses to a personal credit card won’t help you grow your business credit history—the lower your credit score, the lower your chances of getting approved for small business loans. Instead, apply for a line of credit with your bank when your business is the most flush in cash. See this Forbes article for more: https://bit.ly/forbesbizcredit
4. Don’t take out a home equity loan to fund your business: It may sound like a good idea now, but getting a home equity loan to get quick cash could cause you to lose your home and hurt your credit score.
“If your house is worth $400,000 and you have a $200,00 mortgage and decide to take out a $200,000 home equity line of credit to fund your business, your business could fail, and now you’re left with a double mortgage,” says Fernando.
Instead, focus on building your credit to qualify for small business loans from trusted lenders — like us! The pandemic has brought many small business owners economic instability, so financial education is vital in your 2022 entrepreneurial planning. Take your small business to the next level this year by following these tips and constructing a business plan to build your credit score.