Build Business Credit Without a Personal Guarantee

As a business owner you have surely come into a situation where it was necessary to purchase products or services with credit. The vast majority of business owners in this country end up using their personal credit and personal guarantees as a means for funding their business. The costs associated with financing a business can be extremely high and by using personal credit and personal guarantees it becomes quite common for the business owner’s personal credit score to drop. What most of these business owners don’t know about is their availability to build trade credit, also known as business credit. Business credit is the single largest lending source in the world, and is available to any business owner that knows how to take advantage of it.

Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

The major business credit bureaus that compile and provide copies of the reports are:

• Dunn and Bradstreet
• Experian Business
• Equifax Business
• Business Credit USA

Unfortunately, because the information that is sent in to the business credit bureaus is sent in voluntarily, the credit bureaus may never receive any information about your business credit transactions. It’s actually quite common for businesses to go for years building up business credit without any of it ever being reported to any of the credit bureaus.

How do I establish Business Credit?

We’ll begin by talking about business credit scores. A business credit score is rated between 0 and 100, with anything over 75 considered excellent. A personal credit score is rated between 300 and 850, with anything over 680 considered excellent. It's important to note that there are many factors that affect a credit score; it's based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you've had a credit profile, the number of inquiries made on your credit profile and more. You can find out more about what factors affect your credit rating by visiting www.myfico.com.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.

Why is that? The average consumer credit report gets just one inquiry per year and has 11 credit obligations, typically broken down as 7 credit cards and 4 installment loans. Business owners are not your average consumer, however, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. And because business inquiries and personal inquiries aren't separated on their personal credit report, the scores, again, is negatively affected. At the same time, by using their personal credit history to get business credit, they're not able to build their business score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to 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 to the proper agencies, they'll help you establish your business credit profile.

The following are the basic steps you need to take to establish your business credit profile and score:

1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS. You can apply for an EIN number at the IRS website.

I'm suggesting you form a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership because with a sole proprietorship or partnership, your personal credit information could be included on your business credit report--and vice-versa. In addition, as a sole proprietor or partner in a partnership, you're personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLCs, on the other hand, afford business owners liability protection, and you can build a business credit profile that's separate from your personal debts. You may be able to apply for credit under your business's name and obtain credit without a personal credit check or personal guarantee if the credit grantor will do so--and it's been my experience that often all you have to do is ask.

2. Register your company with the major credit bureaus

3. Comply with the business credit market requirements. It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state and federal requirements. You can research the list of business credit market requirements at iBank.com.

4. Prepare financial statements and a professional business plan. These documents are often required by many credit grantors.

5. Find companies willing to grant credit to your business without a personal credit check or guarantee.

When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureau to help build your business credit report and a financial foundation for your company.

6. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your credit score.

7. Make monthly payments to credit grantors to keep your business credit profile active.

At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or personal guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.

Our Business Credit Builder™ Program has been used by thousands of small business owners across the United States to build corporate credit and establish trade or business credit without the use of a personal credit check or personal guarantee. Our 28-step patent-pending program helps our clients to establish a business credit profile and get business credit from vendors across the country.

Source: David Gass, President & CEO, Business Credit Services, Inc. Business Credit Services, Inc. specializes in helping businesses build business credit and establish an excellent corporate credit history. Download their free booklet How to Build Business Credit at http://corporatecredit.biz

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