Business credit diversifies your borrowing options and sometimes your liability
2013. You want an edge, right? How about making smart decisions? Choices that will create the type of success you want for your biz. The thing is, it’s hard to make a decision about something that you don’t understand! That’s why I write these newsletters – to make it easier for you to deal with your money.
We gotta dive into giving you some credit! Yep. Business credit. Ways you can borrow money for your business, not by your personal credit cards. I’m not saying you should get your business into debt for no reason. But if you need to borrow money for your business, why not be smart about it?
I’m talkin’ business credit cards or lines of credit, people! The lines of credit can be issued by banks or even your suppliers. Sometimes when your business borrows the money, the bank or credit card companies won’t make you sign a personal guarantee. That means if your business goes under, the creditors can’t come after your personal assets.
Please review this with your creditors, credit card companies, credit counselor, and your dry cleaner (still reading this?!?) Everyone’s business credit is different based on their own situation.
Do you know that you can have a business credit score? Just like a personal FICO score? Yeah, that’s right! Your business credit score ranges from 0-100. The higher the score, the better. Your business credit score depends on if you pay your company bills on time, and what your business cash flow is, etc. Remember, your score is primarily based on your company financial numbers. Your personal credit score is a smaller factor in determining your business credit score.
So why should you establish business credit anyway?
Having business credit diversifies your borrowing options and sometimes your liability. If you use your personal credit to finance your business and your business goes under, your personal credit will be affected. Your FICO score will go down. Total stinker.
Having business credit is pretty cool. It separates your personal credit from your business credit. You can actually build business credit even if your personal credit isn’t that great.
The higher the business credit score you have, the more money you may be able to borrow from a bank, and the lower the interest rate could be. Some businesses can borrow more money using business credit rather than personal credit.
Here’s what you can do right now. It’s easy like Sunday morning.
1. Your business needs to be an entity. It can’t be a sole proprietorship. In order to get business credit, you need to have an LLC or a corporation. Review with your attorney or accountant.
2. Get a federal tax ID # for your business. Your accountant or attorney can do this for you.
3. Set up a bank account in your business name.
4. Get a business credit card.
5. Make sure your business licenses and state/federal tax returns are all filed.
6. Get your company listed on the 411.com and yellowpages.com directories.
7. Check out the Dun & Bradstreet website and consider getting a D-U-N-S number. http://www.dandb.com/establish-business-credit/ The number is available to the public, which could increase your company’s image.
8. Call any of your suppliers and see if they will give you a line of credit or a business credit card. When you buy from them on a regular basis, and pay them off, they notify the credit agencies.
The bottom line, you need a financial plan for your business, and establishing business credit may need to be part of it. Not sure where to start? Email me! I will personally answer every email. And give you a hug or a high five.
© Copyright 2013 Justin Krane, CFP