Credit reporting issues have caught my attention twice in the last few days. Just today an article in Business Week reports on a Capitol One practice of reporting all small business loans to consumer credit bureaus. Typically business loans would not impact the credit report of the business owner unless the business was delinquent on the loan. Now, for Capitol One borrowers at least, current and performing business loans will end up on the owner’s personal report as well.
How that might impact your personal credit score is beyond me, but it seems that you as a business owner ought to know this is happening and monitor it to understand its implications for you. Yes, I know we all are reminded to monitor our personal scores, but I suspect you, like me, do a spotty job of it (business owners tend to have a better pulse on their business credit).
One of my readers has recently posed the question “in what cases should a manager look at equity verses debt financing”. First let’s make sure we understand the difference between the two.
Debt financing is exactly what it says. Incurring debt (taking out a loan) to finance the start-up or purchase of a business. You can also take out a loan to grow or expand a current business. Debt financing can take on many different forms. SBA loans/lines, traditional business lines of credit/loans, equipment leasing, etc. You can also find alternative debt financing through vehicles like credit card advance funding, hard money loans and hedge fund loans just to name a few.
Equity financing typically comes from an angel investor, a venture capital firm or the like. When a group or individual makes a cash infusion into your business in exchange for an interest in your company, it is an equity investment.