Are you building credit in your business, or are you using your personal credit? As a business owner, you may want to build credit in the name of your business and not depend on your personal funds. Why is this important?
- Protect your personal credit ratings – Using personal credit means your business debt will appear on your personal credit report. This could potentially negatively impact your individual credit worthiness and prevent you for getting a loan if necessary.
- Protect the corporate veil – Business and personal funds cannot be mixed and maintain the separation you set up to protect personal assets when creating an entity.
- Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.
- Conserve cash flow – Established business credit will allow you to purchase products and services on credit allowing you access to funds for a longer period of time. This allows you to conserve cash while obtaining the products and services your business needs.
- Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend loan funds to businesses that meet their corporate lending guidelines which include a business credit listing and ratings with the major agencies.
- Build a business asset – Established credit improves the appearance of your businesses’ funding capacity and stability.
- 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
- Save money – Businesses obtain more favorable rates on lines of credit compared to individuals.
Begin building credit with a bank or credit card in the name of the business. This will require at a minimum a DBA name, but more likely an entity. Your personal banker is a great resource to assist you on this journey.
Don’t make the mistake of using your personal credit for your business. If your business fails (which we hope never happens), you can suffer significant repercussions if you used personal accounts to fund the business.