Things to Know About Business Credit 2

Particularly if you are in the process of separating business and personal credit and you want to build your business as a viable and authentic entity, it's important that you take such steps to show that you are serious. Then when you apply for credit in the name of the business, the lender will be able to review and verify information with this highly regarded business database.

Of course, this is not the only measurement taken before credit for your business will be granted, but it is probably the best known and most widely used.

PERSONAL GUARANTEE

When a new business is formed and begins the process of establishing business credit, often the merchants and wholesalers from whom you are requesting credit will be reluctant to extend credit to what is essentially an unknown entity. Most business owners will respond by attaching a personal guarantee for repayment of business debts. This is a poor idea for several reasons.

First, combining your personal and business assets means you are placing your personal assets as surety for the debts of your company. This may be a risk that is unacceptable to most people. Second, if your personal guarantee is attached to the debts of the business, then the business is not beginning the process of establishing credit in its own name. Third, adding extensive extra credit obligations to your personal credit could result in lower credit scores for you personally, thus creating problems should you wish to apply for a mortgage or other big ticket items. You could be turned down for personal credit, not because your business credit is bad, but because you have too high of a total exposure to income ratio.

So, how do you obtain business credit without giving a personal guarantee. There are many things you can do to legitimize your business in the eyes of the merchants and lenders with whom you want to obtain the credit.

You should make sure that your business is listed in phone directories under its own name and if possible that you have business directory listing as well. Make sure your business address is listed on your business cards. Make sure your business is recorded appropriately with the city, county or state where you reside. Get a business license if needed by your local jurisdiction and arrange to record and file franchise taxes, sales taxes and other taxing stipulations. If you have a web presence, take advantage of that. There are actually about 20 things which you can do to ensure that the lender where you applying for credit will perceive that you are a good credit risk.

You can obtain a list of the lender's expectations in advance of applying so that you can make sure to complete all the requirements prior to submitting the application forms.

As you build the business credit history in a positive manner, you'll find you will not need to present a personal guarantee in order to acquire needed business credit.