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Building Business Credit
By: Simon Harris
Let’s imagine that you wanted to start a business—you have a great business
idea, and now all that you need is business credit so that you’ll be able to
borrow money against your business without having to dive into your personal
assets or personal credit. This means less risk for you, the owner. Some credit
reporting agencies sell a business FICO score based on both the risk of the
business and the personal credit of the owner. In some instances, the owner’s
personal credit is linked to the business credit, but it’s best to keep them
separate if you can. Building business credit is completely different from
building personal credit. In addition, you don’t have the same credit protection
laws with business credit that you do with personal credit.
There are certain keys that you can follow to help ensure your business credit
gets off to a great start. Follow along as we discuss them below.
First, set up the proper business structure and take basic steps to ensure your
business appears stable to the business credit bureaus. That means getting the
proper occupational licenses, corporate structure established and a business
credit profile. A business credit profile helps you to build business credit
without using your personal credit. Benefits in having a business credit profile
are numerous. For one, you will have more cash for the business, convenience in
purchasing, protection of your personal assets, limiting of personal liability
from the business, and the ability to prepare your business for future lending
needs.
Secondly, you need to borrow or buy products and services from companies that
will report your credit history to the major business credit reporting agencies
such as Dunn and Bradstreet and Experian. Unlike personal credit ratings or FICO
scores; income or better yet income potential, plays a huge roll in business
credit scores. The top FICO scores are reserved for the large stable businesses.
But don’t be discouraged, with a little time, you business FICO will skyrocket!
Next, in order to enter the business credit market, you’ll need to do a credit
assessment to determine if you comply with the lender and credit bureau’s
requirements. Then look for businesses that issue credit without the need for
established business or personal credit checks or guarantees. Once you have
transacted business with vendors on credit, you can use those references to
build your credit profiles with the credit reporting agencies.
In many states, there are non-profit organizations and/or government
organizations that will help you with setting up business credit. Often there
are loans available for start-up businesses or even government grants. Check
your state government web sites for such organizations. Many retired owners and
businessmen volunteer to help start-up businesses. By researching your options
prior to a business start-up; you will not be struggling later with questions.
With any luck building your business credit will be a smooth transaction with a
huge net profit for you in the end!
About the Author:
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