There are advantages and disadvantages to both the use of credit cards and business loans, and the wise entrepreneur will review the pros and cons in each situation before determining which is the better choice. Many of the choices will vary depending on the individual credit card or financial institution involved, so it is important to understand fully the conditions and terms of each means of credit.

Credit cards are generally easier to acquire. Not only are people accustomed to receiving credit card offers in the mail based on pre-screening of their personal credit reports, but sometimes fairly large credit limits may have developed over time with good credit habits in your personal life. New businesses will often receive business credit card offers through the mail, especially if they go through the procedure of establishing a merchant credit card account, in order to accept credit cards from their customers.

In reviewing the business credit card offers, you should be looking for the same things as you would in a personal credit card plus a few other things which are important for businesses. You will want to check rates, grace periods, annual fees and limits in order to allow yourself the best possible use of your money.

Business credit cards tend to have larger credit limits than personal credit cards and allow you to place more stringent controls on who may use the card. Credit cards allow you to track expenses better than do checks or cash payments, so many small businesses choose credit cards just to keep the record keeping for the business expenses at a minimum. With a credit card, you receive one monthly statement and make one payment monthly.

Business loans on the other hand allow you to borrow a larger amount and may be either secured loans such as for vehicles or equipment, or unsecured loans. Some financial institutions allow you to place business loans against account receivable or inventory. Business loans tend to be more difficult to obtain, although developing a good working relationship with your local financial institution may be helpful. A business loan may be set up as a business line of credit, which is effective for businesses who have fluctuating expenses or income. The line of credit can be accessed via cash, a credit card or sometime a check drawn on the line of credit.

Repayment is usually spread out over a longer period and interest rates for a business loan are almost certain to be lower than for credit cards.

The key factor whether you have business credit cards or business loans is that you are taking a proactive approach to building and maintaining the business credit you need. Probably a business will make use of each of the forms of business credit at different times and for different purposes. As long the the accounts are managed professionally, the use of either form can be effective in financing your business.

DUN & BRADSTREET

Dun & Bradstreet is probably the world's best known business reporting agency. It's data base contains information on the financial health and well-being of millions of companies. Currently the D-U-N-S numbers are assigned to over 100 million companies worldwide. Data Universal Number System was developed by D&B as a way of tracking companies and branches in various locations. The major divisions of the company are Risk Management Solutions, E-Business Solutions, Supply Management Solutions and Sales and Marketing Solutions. Dun and Bradstreet rankings are widely used by banks and financial institutions, credit companies, insurance companies, and wholesale distributors among others.

The most popular product of Dun and Bradstreet is the DNBi database which allows those who subscribe to the service to search for and receive business information and credit-worthiness information on other businesses. The service is widely used by companies who need to determine the level of risk when offering credit to other companies.

D-U-N-S numbers, the numbering system established by Dun and Bradstreet are used to identify businesses in most every country of the world. The information maintained in the Dun & Bradstreet listing includes such items ans trade and legal names, physical address, mailing address, geographical identifications, industry and product descriptions, employee numbers and sales revenue for three years, and many other statistics valuable for corporate researchers, marketing list compilers, directories, industry analysis, and merger and acquisition analysis among other utilities.

Before extending credit to a business, most merchants will review the Dun and Bradstreet rating to see if there is a listing yet, For this reason, new businesses should apply for a D-U-N-S number very early in the process. This will be one of the indicators that a new business is legitimate and not just a hobby for the owner.

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.