What is Business Credit?
In simple terms, business credit is credit in your business’ name and linked to its EIN and not the business owner(s) social security number(s). Business credit is similar to personal credit; however, the credit is established in the business’s name, builds its own credit profile and score, and represents your business’s ability to borrow money from authorized lenders, based on its past actions. With an established credit profile, on-time payment history and score, the business will qualify for additional credit and funding from the business creditor and financial institutions. More importantly, since the business qualifies for the credit, in some cases there is no personal guarantee (PG) or credit check required from the business owner(s). A personal guarantee (PG) is an unsecured written promise from a business owner and/or business executive guaranteeing payment on an equipment lease or loan in the event the business does not pay. Since it is unsecured, a personal guarantee is not tied to a specific asset.
Why is Business Credit Important?
Business credit is ideal for entrepreneurs, small business owners, and nonprofit leaders just launching their business, as well as, established businesses and organizations. It can be vital for companies that do not have collateral required by the Small Business Administration loans. It’s also perfect for businesses with very little cash flow to verify, no tax returns, or don’t want to verify business information. There are many advantages to building business credit that is not connected to your social security number. First, your business can establish a credit profile that is completely separate from the business owner’s consumer credit profile. This gives business owners DOUBLE the borrowing power as they have both consumer and business credit profiles established.
Most creditors and vendors will check your business credit report before making critical decisions about your business. That evaluation criterion is based heavily on the applicant’s business credit score. Your ability to establish a sound credit profile and score will allow business credit grantors to evaluate the creditworthiness to determine whether or not to issue credit. The more established the business credit profile, the more options the business will have to obtain credit, loans, and leases without the use of personal guarantees. It is not easy to do this, but yet it is not impossible.
By not having an established business credit profile and score will get an owner DECLINED for credit and financing. Please be advised that there are no federal regulations that require the lenders notify the business owner for their reason for denial, so most never know.
When your business credit and profile is established correctly, it can be built without a personal credit check. Business credit can quickly be obtained regardless of personal credit quality. Additionally, most business credit can be obtained without the owner taking on personal liability or a personal guarantee. This means in case of default, the business owner’s personal assets cannot be pursued.
Your business can use its established credit profile and scores to qualify for revolving store credit cards like Amazon, Staples, Lowes, Sam’s Club, Costco, BP, Wal-Mart, even MasterCard, Visa, and American Express. In addition, your business could also qualify for credit lines and loans. Borrowing responsibility can help you build the business you have dreamed about.