If you’re in business, then you know that it takes a lot of work to be successful. Most business people don’t simply open their doors and wait for money to come pouring in. It doesn’t work that way. Instead, you must develop a plan and stick to it. You also need to have access to enough cash to keep the business operating until it begins to make a profit. That’s where having good credit comes in. Following are a few important things to know about business credit.
Keep Business Credit Separate from Personal Credit
A lot of people who go into business for themselves don’t realize how dangerous it is to use their personal credit rating to get a business loan. If something happens where you’re unable to pay your bills, and your business goes under, then your personal credit will be adversely affected as well. Instead, you should keep your business credit separate from your personal credit. There are other advantages to having a separate business credit rating–you may actually be entitled to better loan rates with your business account, because lenders tend to be more lenient with people who take out loans for a business.
Keep Business Assets Separate from Personal Assets
For the same basic reasons that you should keep business credit separate from your personal credit, you should also keep your personal assets protected from your business. That way if the business suffers tremendous loses and you’re forced to declare bankruptcy, your personal assets, such as your home, property, and automobiles won’t be included. It will also protect any money you have in a savings account–and if you do have to go through a business bankruptcy you may be able to start over using personal savings that weren’t included in the bankruptcy.
Form a Corporation
One of the best ways to maintain a separation between your business and personal credit scores is to form a corporation. It will act as a barrier between your business and personal credit life and will enable you to build your business credit quicker. As a corporation, your personal credit information can’t be included in your business record–it will be totally disconnected.
Find Credit Sources
In order to establish a completely separate business credit score, you will have to find credit sources–businesses or lending institutions that are willing to provide you with credit so you can build a credit rating. One way to do that is to approach a lender that you already do business with in your personal life–they will know you and may be more willing to take a chance on your business venture. Another way is to talk to the businesses that you’ll be buying supplies from and let them know that you’d like to open a line of credit. You will probably have to convince them that you’re reliable. A good way to do that is to let them know that you have experience in the line of work your business will be doing, and thereby prove that you’ll be able to do the job and bring money in. You may have to provide a potential lender with a sound business plan in order to prove you have a good chance of succeeding.
Register with Credit Reporting Agencies
Along with finding sources of credit, you will need to make sure they will forward your credit payments to the credit reporting agencies. Because it isn’t mandatory for creditors to report any transactions, they may not do so. In order to make sure that paying your bills on time is reported to the credit reporting agencies, you should encourage the people who lend to you to follow through by reporting. If they refuse, you may want to take your business to someplace that will agree to report. Without the reports, your credit rating will not grow.
Build Business Credit
Once you have established credit, you need to make sure you do everything you can to build your business credit. Pay your bills on time to make sure no late payments show up on your credit report. In fact, it may be a good idea to try and pay your bills before they’re due. In that way your credit score will go up quicker.
Use Credit Wisely
Don’t overdo it. Use credit wisely. Just because you have a line of credit for $100,000 doesn’t mean you have to use it. In fact, it would be a good idea to leave a hefty portion of your available credit unused, because your credit rating is figured in part on the percentage of available credit that you actually have to use. For instance, if you are entitled to that $100,000, but only use $10,000, your credit rating will be higher than if you use $90,000.
Guest post from Andy Granger. Andy writes for BusinessInsurance.org.