subject: Building Business Credit [print this page] We all know that credit is a measure of someones ability to obtain goods or services based on a promise they will pay for them later. Business credit is the same thing, for the business. Building credit is similar in building personal credit, with credit instead of using personal property as collateral; the business assets are at stake.
The use of credit may pose less of a risk than personal credit to the owner of the business because his personal guarantee may not secure any of the merchandise or services obtained. This may not be the case though. A non-business credit check and the owners personal guarantee may be required with some institutions. Personal guarantees are frequently required with new entities; this can be the case even with well-established businesses.
A credit application is often necessary when trying to obtain business credit. Obtaining funding or credit from multiple organizations is a great way to start building business credit. Each organization has its own application process and guidelines for granting credit. Some companies may have very rigid credit-eligibility standards while others are far less strict and give credit with few requirements.
Business credit and personal credit are normally entirely different; however, some business owners find their business and personal credits linked in some ways. Some credit reporting bureaus sell business credit reports, based not only on the business information, but also the personal credit of the owner. The owner or owners of the business are sometimes held responsible for the debts of the business. This can put the business owner at risk of liens placed on personal property if the business debt is not paid. Because this can be a huge risk, it is best to seek legal advice during the initial structure of a business and before obtaining credit. Know what is at risk before you sign any financial documentation.
A great way to build your business credit is to obtain a business credit card to purchase assets such as office furniture, computers, manufacturing equipment, even employee uniforms. Business credit must be used for commercial reasons only, unlike personal credit. Using a business loan to make these purchases is also a good way to build credit. Decide which option is best for you by looking at your cash flow, the amount you will need to purchase items, and how much you can afford to pay, and when you can pay.
