How To Build Your Business Credit
OFF TO A GREAT START!
How To Build Your Business Credit
Copyright 2005 Money and Credit Info
So you’re ready to start a business and employ that great idea into a venture that promises to be very profitable. But you would rather avail of a business loan to avoid having to delve into your own finances to carry the business in its initial stages. But to acquire a business loan, you must establish a good business credit.
But first thing’s first, availing of a business loan would entail more risks for you, the owner, because you don’t have the same credit protection laws with business credit that you do with personal credit. 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 smaller business setups, 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.
There is a certain formula that would assure a great start for your business credit. Here are some very important points to consider:
1. 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.
2. 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!
3. 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.
But most importantly, nothing can be made as a substitute for your own research. Know the playing field and chances are, you won’t have to encounter any rough sailings in building your business credit.
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