You can borrow money if you have credit. Credit includes both transactions where you borrow money and those that require you to pay for something immediately but later. Credit is a concept that you are likely familiar with. It refers to your credit score.
Many small business owners prefer to keep their personal credit and business credit separate. Some business owners prefer to keep their personal credit and company credit apart.
Why use Business Credit?
If you don’t take certain steps, your small business credit will be linked to your own personal credit. When you first start your business, it is like an extension of you. Initialy, your business credit report and personal one will be linked.
Establishing business credit allows you to separate your personal and business credit. It will stop either from affecting each other. If you have a personal credit card account and miss a few payments, it won’t affect your business credit.
How to establish business credit
It isn’t difficult to separate your business credit from your personal credit, but it takes time and effort. Separate your business finances and your personal finances. Create a separate business bank account and keep your records separated.
Note:
You can start by obtaining a Credit Card or a small loan from your bank.
You may still be able qualify for business cards even if you don’t incorporate your business.
Depending on the type and size of your business, you may need to obtain an employer identification number from the Internal Revenue Service. Setting up a phone line dedicated to your business will also help you build credit.
Financing Business Credit
Most lenders will ask for a personal guarantee until you have established good business credit. Your home will be used as collateral.
You might be able to find a lender that will grant you a no-personal-guarantee loan. No-personal-guarantee loans will keep your personal assets out of your business finances.
Consumers don’t have the same lending options as business owners. Small business owners have developed many different types of startup loans.
Building Credit with Suppliers
You can establish a line of credit with your suppliers. It doesn’t need to be formal. You establish a credit line when you receive goods or services today but don’t pay for them until later. You become a creditor when you receive goods and services. You can build business credit by sticking to payment schedules. 3
If they don’t report, you can add these a data-component=”link” data-ordinal=”1″ data source=”inlineLink” and href=”https://www.thebalancemoney.com/what is a credit report tradeline-4584436>trade lines/a> yourself as references to your Dun & Bradstreet report. You can add these business lines to your Dun & Bradstreet Report if they do not report.
Note:
Dun and Bradstreet offers suggestions on what type of trade references you should list and how this will affect your credit score.
Monitor and Provide Information
It’s not easy to build your business credit. It’s possible that you will need to give extra information to credit bureaus. You will also want to ensure that the information they have is accurate. You should review your credit report periodically to fix any mistakes.
Business Credit Bureaus
There are many business credit rating agencies. Focus on Dun & Bradstreet Equifax and Experian as you build your credit.
Each bureau uses a different scoring model and information. Business credit scores are different from individual credit score. The credit bureaus’ individual credit scores are very similar (if not exactly identical). Even custom scoring models put you in the same category as lenders.
Information about business credit scores comes from a variety of sources. Dun & Bradstreet is one example where you are required to provide a lot of information in order to complete your profile, including your DUNS. Each bureau can score and operate in a different way.
These business credit scores perform a similar role as personal credit scores. They affect the ability of your business to do business with credit. These scores are based on public records and your payment history.
Fees
The cost is also a major difference between personal and business credit scores. You will have to pay for any information you request or provide. Credit reports are not free every year. You’ll have to pay a small fee for credit monitoring.
Bottom Line
Separating your personal and business credit can be a difficult process. The benefits of this effort outweigh any costs. You can rest assured that your personal credit will be protected if anything happens to your company, and your business will not suffer if your credit is damaged.
