In short, yes you should care about business credit.
Business owners typically fall into one of three categories when it comes to biz credit.
1. They are very familiar with it and have established scores with the 3 national business credit agencies for their company. Their vendor accounts and credit cards report good payment history in their business name only and their personal credit is not tied to their business.
2. They are somewhat familiar with business credit and they may have a Paydex score with Dunn and Bradstreet. They also might have credit vendors and credit cards, but do not know if they are reporting their good payment history to the business credit agencies. They use their personal name and credit on most, if not all, business transactions.
3. They exclusively use their personal credit to finance their business and do not know the benefits of biz credit, or that it even exists at all. Their personal credit and assets are tied so closely to the business that if the company failed, their personal financial situation would be destroyed as well.
Unfortunately, many business owners fall into the two latter categories, or somewhere in between. It is hard to blame them since there is such a great deal of false or conflicting information floating around in terms of biz credit, especially on the internet.
There are very few sources out there that provide unbiased information about what business credit is and how to establish 3 good business scores. So how does biz credit help a company and how does one build a solid credit profile?
Having a good business credit foundation not only protects the owner’s personal credit and assets, but it also makes larger and less expensive financing available to a business including bank loans, alternative financing, business credit cards, lines of credit, vendor credit etc. Access to this type of financing can allow your company to:
-Free up working capital
-Take advantage of business opportunities
-Purchase/lease revenue generating equipment
-Grow and expand, etc.
The protection that separate business credit scores provide to a business owner’s personal finances cannot be understated. Many business owners end up destroying their own personal credit at the expense of their business, but it does not have to happen this way. There many tricks and tips that can be used to set up a business the right way in terms of credit. Any business, from brand new startups to 10 year old companies, can benefit from some of these tips.
Once the importance of business credit is understood, the next step is finding out how to build your scores. The main thing to remember is the number sequence 1-3-5. To establish a good credit profile for your company, you will need to get 1 business bank loan, 3 business credit cards, and 5 vendor lines of credit. These all need to report to at least one of the credit agencies in your business name only.
Personal guarantees are OK, as long as the credit account only reports in your business name. If you give a PG, whatever you do, make sure you do not pay more than a week late or miss a payment. This will defeat the purpose of trying to build up your business credit profile.
