Entrepreneurs Are Risking Personal Finances to Start Businesses

The initial financial challenges of starting a small business are substantial and often unpredictable. In fact, 38% of small-business owners report that they underestimated how much it would cost to start their business.

When hidden costs arise, many turn to outside funding—according to findings from our new survey of over 700 business owners, one in three entrepreneurs report that having access to personal loans and business credit cards is what helped them start their business.

Unfortunately for some businesses, credit can be a serious barrier to meeting the financial challenges of starting a business. A whopping 43% of business owners say their score isn’t high enough to qualify for traditional small-business lending.

Not having access to additional funds when problems arise can be fatal to small business hopes and dreams, especially when you consider that only 32% of business owners have an emergency fund in case their business doesn’t generate revenue.

Small-business owners have no shortage of determination when it comes to starting their own businesses. This, unfortunately, leads many to leverage their personal finances—putting themselves and their property at great risk.

According to the responses, 32% of small-business owners have had their personal finances affected by their business, and 31% are unsure how to keep business and personal finances separate. Small-business owners feel the difficult realities of leveraging personal finances everyday.

We gathered a few responses from entrepreneurs on how they’re utilizing their personal finances, and this is what they said:

• My credit utilization ratio is above 30% since I’m using my personal finances to fund my business. (29%)
• I’m not saving for retirement so that I can personally fund my business. (30%)
• I’ve tapped into my personal funds because of the pandemic to run my business. (28%)
• I’ve maxed out my business credit card before. (46%)

With so much small-business debt going around, it’s a miracle any small businesses are managing to stay debt free. Only 11% of small-business owners say that they have no personal debt related to their business.

For all other owners, the realities of debt are quite sobering:

• 23% report up to $5000 in personal debt related to their business.
• 34% report having $5000-15,000 in personal debt related to their business.
• 28% report up to $15,000-30,000 in personal debt related to their business.
• 4% report more than $100,000 in personal debt related to their business.

So much personal debt is dangerous to individuals’ livelihoods. And it’s all brought on by their inability to secure business financing.

Building credit is a top concern for small-business owners who want solid financing at a reasonable rate. In order to take charge of their credit, many small-business owners are considering credit monitoring. In fact, 31% say that free credit monitoring would help them build their credit score for business expenses.

Our experts here at Business.org have vetted a number of credit monitoring companies and were so impressed with one particular service that we decided to partner with them. If you want to take charge of your business credit, sign up for Credit Sesame today.

Being more deliberate and mindful about building credit is the key to accessing solid financing options now and in the future.

We partnered with Pollfish to conduct an anonymous survey of 700 small-business owners with a +/- 2% margin of error with a confidence level of 95%. Business.org analyzed the results and compiled this report. To learn more about Pollfish and how it organically finds respondents, check out its methodology.