You’re not alone as statistics show that over 65% off all business owners use credit cards for business purchases but what’s alarming is only 50% of those cards are actually in the business name.
As a business owner using personal credit cards for business is a risky approach since you assume total liability and if your company is sued or fails you risk losing personal assets and good credit ratings as well.
So how do you establish corporate credit in the company’s name without putting your personal credit on the line?
For starters if you operate as a sole proprietorship you’ll need to incorporate your business and then obtain a Business Federal Tax Identification number .
As a corporation your company is treated as a separate being with its own tax registration with the IRS and state agencies. It files its own tax returns and it can also create its own credit files completely separate from that of its owners.
Your company’s Tax ID Number or Employer Identification Number is the number that you will use to get registered with the business credit bureaus like Dun and Bradstreet .
You will also be required to furnish this number on corporate credit applications because lenders use this information to conduct a business credit check on your company.
Before you start to apply for credit make sure your corporate records, state filings and required business licenses are all up to date. In addition, get your company a 411 business listing so a supplier or lender can complete every aspect of its verification during the underwriting process.
In total there are well over twenty compliance checks that you will need to complete prior to applying for credit. Once you meet these requirements the best place to start with is suppliers.
Many types of suppliers including major brands extend lines of credit to businesses like yours giving you the opportunity to finance purchases and conserve your company’s cash.
You can obtain products like office supplies, computers, and marketing materials with payment terms ranging from net 30 to
net 60 days.
You should focus on applying for credit with suppliers that provide products and/or services your company needs in order to make regular purchases using your credit line. By paying invoices on time you will be establishing corporate credit history and increase your company’s creditworthiness.
With a strong business credit report you can stop relying on your personal credit to qualify for the financing your company needs. Since a creditor, lender or supplier can now easily determine your company’s risk level with a business credit check, qualifying will be a much easier process.
As a startup, I know it can be tempting for you to decide on operating your business as a sole proprietorship and using your personal credit to fund your business simply because it’s one of the easiest structures to create and you already have the cards on hand.
But when you establish corporate credit for your start up you can improve your company’s image, protect your personal credit, limit your liability, and increase your credit capacity since businesses can obtain 10 to 100 times greater financing then an individual.
Ready to establish corporate credit for your startup? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>
About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune . Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.