In his book, The Seven Habits of Highly Effective People, Dr. Stephen Covey recounts a conversation with a man who hated attending out-of-town training events. The man explained that his wife calls and hounds him on every detail of the day, whom he dines with, etc., and that he felt imprisoned by it. He also volunteered to Dr. Covey that he met his wife at a similar event at the same time he was married to someone else. Dr. Covey then gave one of my favorite quotes as counsel to this man: “You can’t talk your way out of a problem that you behaved yourself into.”
This truism is extremely relevant for business owners who are trying to obtain capital for their business. I’ve chatted with business owners that want a couple million dollars, unsecured with no personal guarantees, no business plan, and personal credit in the 500s. As much as I want to help these people, the most valuable thing I can say to someone like this is to GET REAL! Your personal credit demonstrates your propensity to meet your financial obligations and is an indicator of how risky it is to do business with you.
Just because you have poor personal-credit doesn’t mean that you are a bad person; there are a lot of reasons why someone’s credit may have tanked. Nonetheless, your credit score is a fact that you have to deal with. Maybe you realize that this is a negative, and you need to take action to improve it – something that you need to behave your way out of. Successfully maintaining a good business credit score can demonstrate you are a good business risk.
Banks and investors make money by making safe bets. They are not in the business of handing out money to those who simply ask for it. You need to “behave” if you want to obtain capital for your business. You do that by building good personal and business credit, establishing a positive track record as an entrepreneur and running a professional business with not just a vision, but a plan for success.