Mistake That Can Ruin an Entrepreneur’s Personal Finances
I have been wanting to write this post for a very long time. Out of hundreds of business owners—either current or prospective—that I speak to on a regular basis, nearly one-half tell me they are about to commit the mistake I discuss in this post without realizing how it can set back their personal finances. In fact, you might consider this post a public service announcement, because the ease of making this mistake, coupled with its long-term effect on your personal financial well-being, is shocking.
I am talking about using a personal line of credit to fund your business. On paper, this process does not sound catastrophic, dangerous, or worrisome. In fact, it sounds logical and easy.
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The typical thought process individuals share with me is as follows: You are passionate about starting a business or maybe buying an existing one, you have a good credit history, and the bank has given you access to a line of credit. It is sitting there waiting to be used and you realize that it’s an easy way to fund your dream of entrepreneurship—be it buying computers, equipment, paying yourself a salary, or depending on how large your line of credit is, even buying a business. You can simply take the money out of your personal line of credit and transfer it to your business. Easy!
In reality, however, this simple transaction can decimate your personal financial well-being, cut off your personal access to credit, suck you into a whirlpool of high interest rates, and leave you with a subpar credit rating for years to come.