Are you building credit in your business, or are you using your credit? As a business owner, you should build credit in the name of your business and not depend on your personal information. Why is this important?
Here are the top ten reasons to start building credit in your company’s name according to Marco Carbajo, CEO of the Business Credit Insiders Circle (www.businesscreditblogger.com), a step-by-step business credit-building system providing lines of credit, trade credit, and funding sources.
- 1. Protect your credit ratings – With corporate credit, your business debts and financial obligations would report only on your company’s credit reports- not your reports. As a result, your debt-to-credit limit ratio would not be impacted by the debts of your company.
- 2. Protect the corporate veil – By separating personal and business credit, you eliminate the risk of co-mingling funds–and this includes the “co-mingling” of credit.
- 3. Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.
- 4. Conserve cash flow – Many suppliers, businesses, and vendors will extend credit to your business with net 30 to 60-day terms. This allows you to conserve cash while obtaining the products and services your business needs.
- 5. Limit accumulating personal debt – You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.
- 6. Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.
- 7. Build a business asset – A business with an established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your business’s funding capacity and stability.
- 8. Limit inquiries – With business credit, you can stop relying on your credit to obtain financing, which limits the amount of inquiries being pulled on you.
- 9. Receive larger credit limits – You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business than you can as an individual.
- 10. SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individuals. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.
Begin building credit with a bank account, credit card, etc in the name of the business. This will require at a minimum a DBA name, but more likely an entity. Your banker is a great resource to assist you on this journey.
Don’t make the mistake of using your credit for your business. If your business fails (which we hope never happens), you can suffer significant repercussions if you use personal accounts to fund the business.
I hope this information is helpful to you.
Candy
