Why would a business need to separate business credit from personal credit in the first place? Because good business credit scores will enable a business to:

-Protect the assets and credit scores of the owner(s)
-Gain access to lower interest rates
-Obtain larger business loans, credit cards, and vendor lines of credit
-Expand the funding programs available to the business

The key to separating business credit from personal credit lies in this simple numerical sequence: 1-3-5. This stands for 1 bank loan, 3 business credit cards, and 5 vendor lines of credit. Getting your business set up with a 1-3-5 will create the ideal situation for building and separating business credit from personal credit. Before you start obtaining a 1-3-5 for your business, make sure you go through this checklist of items:

1. Get incorporated (LLC, S-Corp, C-Corp, etc.)
2. Get an EIN (Employer Identification Number.)
3. Make sure a bank account is open in the business name.
4. For home businesses, get a separate business phone line and address. You can get a virtual address from somewhere like Mailboxes Etc. or UPS Stores.
5. Make sure your business is listed with the local 411 directory assistance.

The most important part of the 1-3-5 is that each credit provider reports your good payment history, only in the name of the business, to at least one of the 3 national business credit agencies; Dun and Bradstreet, Experian, and Equifax. A business credit account is useless for building business credit if nobody knows that you have it, or if it only reports under your personal credit.

Let’s break down the 1-3-5

1 Bank Loan – Bank loans are the ultimate catch-22. It is difficult to establish business credit without them, but many businesses are unable to qualify for them. Once a business has a reporting bank loan in the business name, it is put “on the map” in terms of business credit.

Here is a little trick to obtain a business bank loan. If you deposit an amount of money (at least $ 5,000 recommended) at an SBA preferred lending bank, then you should be able to get a business loan back for 100% of the CD value. Not all banks will do this so you will have to find a bank that will work with you. The money will never be at risk and your company will have a reporting bank loan in the name of the business.

3 Business Credit Cards – Many business credit cards are actually personal credit cards with the business name on the front. Companies like Advanta, Discover, and AMEX have offered true business credit cards in the past, but have cut back issuing these cards during the financial crisis.
Currently the best way to get true business credit cards that report in the business name only is to think more retail specific. Places like Home Depot, Staples, Office Max, and others offer reporting business credit cards in the name of the business. Before you apply for any business credit cards you should make sure the following step is completed.

5 Vendor Lines of Credit – Vendor lines of credit are the easiest to qualify for. There are over half a million vendors in the United States, but only 6,000 or so that report. If you cannot get your current vendors to report, try places like ULine, Office Max, DHL, Borders, and Staples. It is OK if the vendors’ products or services do not directly apply to your business. The most important part is that you get no more than 5 reporting vendor credit lines.

Once you can obtain the 1-3-5, be sure to make purchases utilizing your business credit cards and vendor lines of credit so your good payment history will be reported and your business credit scores can grow. Whatever you do, do not pay late as it will defeat the whole purpose of these accounts which is to grow your business credit separate from personal credit.