Establishing and building business credit can be an important factor for many new and growing businesses.
It is very common for lenders to require a personal guaranty for the debt when you want to open a credit card or other credit account for your business. Since the business is new and doesn’t have any established account or credit history, they want to make sure they’ll be able to collect from you if the business goes under.
But as your business grows and your credit needs go up, you’ll want to be able to demonstrate to lenders that your business can carry the burden, and they shouldn’t look to your individual credit to determine the business’s creditworthiness. That’s where credit for your business comes in.
“Wait, I thought your business and personal credit was the exact same thing?”
Thankfully, it isn’t. Ideally, your credit would be completely separate from the credit of your business. That way changes to one will not impact the other. If you make a few mistakes that impact your personal credit (been there, unfortunately!), it shouldn’t affect your business’s credit, and vice versa.
Establishing and maintaining business credit can also be a factor in piercing the corporate veil. In addition it helps with creating the separateness of your business and its owners. However, don’t start freaking out if you have yet to establish credit for your business. It’s unlikely that this factor, on its own, would make you personally liable for business debt. Being able to demonstrate that the business has an established credit history that is unattached to your personal credit could potentially work to your favor someday.
“Okay so how do I get credit for my business?”
Here are a few tips for establishing, building, or improving your credit for your business.
Start with your personal credit.
The most important factor when you’re trying to establish credit for a new business is your own personal credit history. Lenders will often look to the new businesses, business owner’s personal credit history. If you have a bad credit score, bad debt, etc., this is going to negatively affect your ability to get credit for your business. In fact, many lenders will require a personal guaranty if the business doesn’t have a decent credit or financial history. So do what you can to improve your personal credit while you’re starting your business and working on your credit. It can be particularly challenging for minorities, immigrants, and women to establish credit and obtain funding for a new business. So if building credit is important to your business, make sure your personal credit looks good first.
It’s always a great idea to consult with an experienced attorney when starting a new business. If you’re in Colorado and are looking for help with your new business, check out our flat-fee packages and schedule your Discovery Call now to get started.