Too many business owners are using their personal credit to finance the launch, expansion, or growth of their business. A majority of business owners have no idea what business is or how to establish it. By following a few simple steps any business owner can establish business credit, therefore, separating their personal credit from their business credit.
When business owners use a personal credit card to pay for business expenses, the debt of the business reports back to their personal credit reports which lower their scores because their business debts hurt their personal debt to income ratio.
To help prevent business owners from damaging their personal credit, every business owner should follow the simple steps of establishing business credit. By establishing business credit the debt of the business will report to the business credit file and not the personal credit file. Establishing business credit will also help the business build a strong business credit file so loans, and lines of credit won’t require the business owner to sign a personal guarantee.
Here are just a few reasons why every business owner should establish business credit.
- Establish credibility. You can’t expect to walk into a bank and ask for a business loan with no business credit or business history. By establishing a good business credit profile you will be able to secure the financing for your business needs.
- If your business should fail, you would still be legally responsible if you used your personal credit to finance your business
- Saving money. That’s right, business credit rates are typically lower than personal credit rates. A few percentage points in interest mean thousands of dollars in the long run
- Float your business through tough times. Even though everything is going great currently, you never know when your company will take a turn for the worse or when economic times might change. By establishing business credit you will be prepared for the downtime.
- Get the money you need. Let’s face it, without the money you need to finance the launch or expansion of your business you really won’t be in business at all. Don’t make the mistake of using your personal finances to finance your business.
There are many, many more reasons why you should establish business credit. We have all heard the saying, “keep business expenses separate from personal expenses,” right? The only way to do that is to set up your business properly in the first place by establishing business credit.