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Even if you don’t use it very often, having a line of credit for your business is a smart idea. Credit lines can serve as a life raft in times of need, alleviating cash flow problems or rectifying dire emergencies to keep your business afloat. Unfortunately, business credit lines can also be detrimental if they’re used irresponsibly.

Small business owners need to be careful any time they open and use a line of credit for their startup. By making a few simple mistakes, you might find yourself in more debt than you planned or with a damaged credit score that affects you in the long term.

If you’re planning to open a secured or unsecured line of credit for your small business, make sure to avoid these common and completely avoidable credit mistakes.

  • Missing payments: One of the most common and unfortunate mistakes a business owner can make when it comes to credit is failing to pay their bill on time. Missing or late payments often come with a fee, forcing you to pay extra. But what’s even worse is that even a few missed payments will show up on your credit history. This can lower your business’s credit score and potentially hamper your ability to obtain loans or other credit lines in the future.
  • Ignoring fees and interest: You might not have a ton of options when it comes to your business’s first line of credit. However, over time, you might be eligible for credit lines with lower interest rates and/or fees. Business owners should check how much they pay in monthly/annual fees and other costs to their credit company and compare these costs to other credit lines to ensure you’re saving the most money month over month.
  • Maxing out your credit: Business owners need to find the balance between using too much and too little of their credit on a rolling basis. Not using any credit means you won’t be able to build a strong credit history. However, maxing out your credit is even worse. Using all the credit funds available to you isn’t wise because it leaves you with no wiggle room in case of emergencies, and the high credit utilization ratio might look bad on your credit history.
  • Using personal lines of credit: You’re closely tied to your business, but that doesn’t mean your finances should be. Using a personal line of credit for business-related expenses is extremely risky for a few reasons. First, you limit the amount of credit available to you for personal use and might damage your personal credit score with new applications. More importantly, you risk losing personal collateral—like your car or your home—if your business experiences financial hardship.

Opening a line of credit for your business can help you navigate challenging financial periods and invest in your business—but only if you use it responsibly. Tenet Financial Group’s Business Credit Program is designed to help entrepreneurs develop their business credit quickly without putting their personal credit at risk, all with the help of a knowledgeable Business Credit Coach. Contact our team today to learn more!