Entrepreneurs must separate their personal and business life. They need to in order to be seen as a typical consumer for credit purposes, so they aren’t turned down for a mortgage or car loan just because their credit score is low from business activity.
The key to understanding business credit is to know there are no laws protecting the business owner from the business credit bureaus, as there are with personal credit. For instance if you look on your personal credit report and find “anything” that is not accurate you can dispute it with the personal credit bureaus (Equifax, Experian, TransUnion). The bureaus are required to research the information for accuracy and then reply within 30 days or it has to be removed from your report.
For business credit reports there is no such law. You can have misleading or completely false information on the business credit report and no protection from the law.
I tell you this because of the value of having your business in compliance with the business credit market before you apply for credit under the business. Before you look at applying for credit under your business name you must have a business credit profile built that is separate from your personal credit and be in compliance. For example, you must have a business phone line listed with directory assistance and a business license. Without these two items most lenders won’t even consider your credit application. These are only two of hundreds of items lenders look at for your company’s compliance.
By applying for credit under your business and not having first established a business credit profile, which we refer to as “being in compliance”, obtain basic business credit without the use of your personal information and develop a business credit score, you can waste lots of time, money, and resources.
In order to obtain the credit score you must find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information a business credit profile will be established.
The business credit profile can be established as a Sole Proprietorship or Partnership in addition to a Corporation or LLC. However, with a Sole Proprietorship or Partnership the owner’s personal credit information may be included on their business credit report and vice-versa. In addition, as a Sole Proprietor or Partner in a Partnership you are personally liable for the debts of the business and all your personal assets are at risk in litigation.
Corporations and LLCs on the other hand afford the business owner liability protection and a separate credit profile. The owners may apply for credit under the business and obtain credit without a personal credit check or guarantee, if the credit grantor will do so. Our company, Business Credit Services, has researched the trade credit market over the last five years and found that there are thousands of companies that will do this if asked.
Our business focuses on getting companies in compliance with the trade credit market and matching companies seeking credit with those granting credit. It is extremely important for businesses to meet all requirements of the credit market in order to ensure a higher likelihood of an approval. In fact, not being in compliance with the credit market can cause red flags with credit bureaus and grantors. Most businesses will not grant credit to another business that has not taken the steps to set the company up with the proper licenses and local, state, and federal requirements.
Almost every business at one point will need some type of credit. To lower the risk of using your personal credit and guarantees and obtaining the best possible terms, start the steps necessary to build a business credit profile separate from your personal credit report. No one wants to find themselves in a position unable to obtain credit for a mortgage or car loan when you need it most.
You can discover the secrets of building a business credit profile separate from your personal credit with David Gass’ program “Success Steps to Business Credit”.