Business Credit: How and Where to Get It


Jeffrey Bumbales

At some point in the life of your business, you almost certainly will need access to money you can’t simply raise on your own in a timely manner. Beyond that fundamental challenger, however, you’ll also need to establish your business as a solid, reliable presence to colleagues, customers and vendors. To accomplish all this, you need to build credit — not just personal credit, but business credit. Knowing how and where to find this type of credit is therefore an essential step for starting a new business and/or keeping an established business running.


Why You Need Business Credit

Small business owners tend to rely on their personal credit lines to help pay business expenses. This has always been common practice among sole proprietors — but as Business News Daily points out, it’s a bad idea on a lot of levels. For one thing, if you’re taking personal financial responsibility for your company’s fortunes (and debts), then if the company shuts down or otherwise fails, your personal assets are on the line. That means your creditors can win judgments against you, commandeering possessions, properties, and the contents of your bank account. Another point is that your personal credit doesn’t necessarily count as your business’s credit. Unless your company can establish its own credit score, you may be hard pressed to obtain any kind of large, business-specific loan from the SBA or other financial institutions.


How to Establish a Business Credit Identity

If you shouldn’t leverage your personal credit as your business credit, then how do you draw the lines between the two? The first step is to create a legally separate business entity. If you’re a sole proprietor, that means incorporating as an LLC, S-Corp, PC, or other legally recognized corporation or partnership. Yes, it costs money to have an attorney do this for you, and your taxes will become significantly more complex, but your personal finances will be protected against creditors in the event of a future business catastrophe.

Once you’ve created your business’s separate legal identity, it’s important to follow through with other important steps. Experian recommends obtaining a federal EIN (Employer Identification Number) for use with tax documents, business funding loans and other transactions, replacing the social Security number you were probably using for these purposes. Your business entity should also have its own bank account. Running transactions through this bank account, instead of your personal accounts, helps to clarify the revenue trail. Even setting up a separate phone number for your business helps to divide personal calls from business calls, underlining the personal/professional distance you’ve created and emphasizing the business’s unique “persona.”

Once you’ve done all this, you can build a documented history of profit and loss for your business, one that stands apart from your own personal fortunes. This will inevitably help small business lenders analyze your company’s creditworthiness more easily, while also taking it more seriously as a standalone enterprise.


Getting the Credit

So now that you’re ready to seek credit for your small business, which doors do you knock on — and what kind of credit do you want? If your goal is to have ready access to emergency cash, then you’ll want to obtain an unsecured line of credit from a lending institution such as a bank or credit union, whether you choose to apply online or in person.

The U.S. Small Business Administration notes that there are actually two kinds of unsecured lines of credit to choose from. Traditional unsecured lines of credit allow you to charge purchases onto a credit card on your business’s name; they also allow you to write checks. But they also require tons of documented data to obtain (which you may not have if your business is still new),and you must pass an annual financial review if you want to keep them. Non-traditional lines of credit are backed by FICO, so they’re less stringent in their application and maintenance requirements. Either route will establish a line of credit you can use for quick cash, to qualify for small business loans, or to establish your business as a good risk with vendors and investors.

While obtaining small business credit can prove enormously helpful, keep in mind that debt is debt. Pay what you owe as quickly and regularly as possible to keep your available credit high and interest levels low. A clean repayment history will do wonders to boost your company’s credit score. If you worry about getting buried in debt, there are always other ways of funding a financial pinch, including the use of working capital loans. These funding solutions put money in your hand with 24 to 48 hours in return for a small cut of your future credit card revenues — with no need to worry about paying interest or cluttering up your business line of credit. Learn more about this option by contacting Credibly today!