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Building Business Credit
By Simon Harris
Let’s imagine that you wanted to start a business—you have a great business idea, and now all that you need is business credit so that you’ll be able to borrow money against your business without having to dive into your personal assets or personal credit. This means less risk for you, the owner. 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 some instances, 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. In addition, you don’t have the same credit protection laws with business credit that you do with personal credit.
There are certain keys that you can follow to help ensure your business credit gets off to a great start. Follow along as we discuss them below.
First, 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.
Secondly, 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!
Next, 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. By researching your options prior to a business start-up; you will not be struggling later with questions. With any luck building your business credit will be a smooth transaction with a huge net profit for you in the end!
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