26 January 2015

How Corporate Credit Works

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How Corporate Credit Works

Everything you want to do to make your business bigger and better is going to cost money. In the beginning, most people use their personal credit cards to finance the business or get loans in the name of the business using their personal credit rating to guarantee the loan.

This is fine in the beginning, but it could get you into trouble in the long run. A major key to success for any entrepreneurship should be establishing a good business credit rating that is separate from any of the individuals who have a stake in the business.



Having corporate credit is vital because if you should ever accumulate a large amount of debt in the business, that won't affect your personal credit rating.

The first step in establishing business credit is using the right legal structure for your business: a corporation or an LLC. These business forms are legally separate from the individuals that run them, which mean they can establish their own credit history.

You can use corporate credit for all sorts of things related to your business, including getting credit cards from retail businesses, establishing lines of credit with companies that you deal with, leasing equipment or cars for the business, even buying real estate.

The best part is all of this can be done without using your personal credit or even going through a personal credit check.

Building corporate credit is something that has to be done over time. You can't just suddenly decide you need money and walk into a bank and expect to get a loan. Just like you have a personal credit score, businesses have credit scores.

The business credit scale is a range of 0 to 100, with a score of 75 considered good. There are several different companies that collect information and determine business credit scores. The only trouble is it is voluntary to submit information about giving business credit, so there are actually relatively few businesses that report this information. Finding them and getting credit with them is key to establishing your business credit.

As you start building your credit profile piece by piece, your company will be able to apply for and receive bigger loans or credit cards with higher spending limits. In a way, it is a lot like building your personal credit. When you first started out you probably got a credit card with a credit limit of a few hundred dollars, but after just a few years you were able to borrow thousands, maybe even enough to finance a new car or buy a house.

That's the way business credit works, too. With some time, patience and good spending (and paying) habits, you'll have a great business score and be able to get the funding you need to take your venture to the next level.
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