Business credit is in certain ways not different from personal credit, only that the scales are going to be larger. Now, for a start-up business, you’re likely to rely on your personal credit and that of your partners to establish and grow the business for the first year or so. While this is to be expected, eventually you’re going to need your business to be able to guarantee itself so you can access more funds for bigger projects.
It’s important to have your business credit separate from your personal credit, even though both should be in good shape if you’re going to secure the funds you need at attractive interest rates. Usually also, your personal credit options will soon be exhausted in the process of starting and running the business for the length of time it takes before it breaks even and begins to support itself.
When you now want to make greater advancements – acquiring office space, fixed assets, and equipment and expansion projects – it would be a reprieve if the business has creditability that it can rely on.
- Establishing and carrying out business credit cleanup
Business credit cannot be built in an instant like personal credit.You shouldtherefore begin as soon as possible in order to ensure that you have a long enough and stellar history to go with. There is no shortcut – you have to borrow money and pay it back responsibility. For a business, the length of the credit history matters just as much as its actual status.
However, business credit and personal credit are also different, so you should know what to do. First, you’ll apply for a Tax Identification Number for the business, which is equivalent to your social security number. Make sure you’re adhering to both state and federal guidelines for operating that business.
Next, incorporate your business – make it its own entity separate from its owner(s) – to limit personal risk, increase your credit score and improve its standing as a borrower. In fact, it is common for many businesses to carry out incorporation in the process of the business credit clean up process.
Open a business bank account to start a line of credit for the business and separate it from your personal accounts. Pay all your bills on time through that account so the information can trickle from bank to bureau. However, particularly on the outset, keep a close eye on your personal credit score, since the business will still be young and considered a high risk borrower.
Advantages of healthy business credit ratings
- Large credit capacity
Successful businesses with good credit scores can get up to 100 times more credit than a personal credit score can earn. This in itself provides very large wiggle-room for future ventures and increasing scales of operation in the business.
- Increase in company value
A company is more attractive, both to investors and potential shareholders/buyers, when it has a good credit score. The greater access to revenue doesn’t hurt either.
- Protection of personal credit
Separating personal credit from business credit is best both for business and owner in the long run, so that a shortcoming on one entity does not affect the other. Like we said, on the outset it is to be expected since the business hasn’t built for itself enough credit history to qualify for assessment as a separate borrower, but as soon as the business has grown enough, the distinction must be made for preservation of both entities’sanctity.
For further information or assistance with both personal and business credit cleanup, contact us by clicking the link.