Many small business owners might be tempted to utilize consumer financing options rather than commercial financing when seeking out funds for their business. Though fairly easy to get, when it comes to financing your business, consumer financing options likely won’t be the best bet for either you or your business. Direct Capital has found this again and again.
Nearly everyone, from a school teacher to a CEO, has had a personal financing need at some point in their lives – from a personal credit card, to a home equity line of credit (HELOC), a personal loan from a bank or a manufacturer retail finance program. So it’s no wonder that almost everyone knows at least one place to turn for consumer financing, likely from a lender used previously or one of the many consumer financing providers on radio, TV, or billboards. With so many consumer financing options out there, there’s bound to be a lender that will approve just about any need and any applicant. To make them even more appealing, many approvals can happen in as little as just a few minutes.
But, there’s a dark side.
Unlike commercial financing, using consumer financing will impact your personal credit. Every time you get another loan or open another line of credit, you are accumulating more debt. More debt almost always means a lower credit score. If that’s not bad enough, if you’ve obtained a home equity line of credit, you’ve now put your home on the line.
Commercial financing might seem to be a little bit of a dark horse in the financing game, due to the saturation of consumer financing in the industry. But, commercial financing could be your saving grace– without having to put your home and personal credit at risk.
The trick to commercial financing is ensuring that it’s used in the right instances. For one, it can only be used to purchase equipment or other products that will be put into use by a business for a related business purpose. Second, you’ll need to prove that you are purchasing on behalf of a legitimate business. These minor “hassles” definitely pay off as commercial financing does not add a trade line of any additional debt to your personal credit. So, there is no need to worry about a lowered credit score and subsequent decline when they come back to buy more equipment.