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| Understanding Corporate Credit |
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Corporate credit is credit for your business that is completely separate from your personal credit. It is not easy to build this type of business credit, but it is necessary for a business, no matter how small or large it is, to succeed. All businesses face times when they need some extra capital, and without good credit, that capital is hard to come by.
The first step towards building a good corporate credit score is incorporating your business. It is impossible to build this type of credit if you are not structured as a corporation or LLC. Once you have the proper business structure in place, you can begin building your business credit history.
So what is the difference between this type of credit and normal business credit? The difference lies in the structure of your business. Corporate loans and credit cards are only available to businesses that are corporations or LLCs. Other forms of business credit actually rely on your personal guarantee. This means that if your business is unable to pay back the loan, you are held personally accountable for the money. You could lose your house or other assets if your business cannot repay what is owed. Even if that MasterCard secured credit card you are holding has your business’s name on it, if your business is not a corporation or LLC, you are still personally responsible for that card.
When building business credit, start small. You don’t necessarily need to go out there and apply for a bunch of business loans or corporate loans to begin building your credit history. Instead, open a corporate business credit card account and corporate line of credit or two with vendors. As long as you have an employer identification number, you can pretty easily get this type of credit.
Once you have your lines of credit in place, use them sparingly. You want to have access to funds, but you do not necessarily want to start building a large amount of debt for your business. Instead, focus on making small withdrawals on these lines of credit, and paying them back in a timely manner.
Now, what happens when you need money and have to start searching for corporate loans? With some solid credit history backing your business, you will be able to apply for corporate loans much easier. Also, it helps if you can show that you are making profit. If you have some solid profits in your books and have not used all of your current lines of credit, you will be more likely to qualify for business loans. Use the corporate lines of credit when you need them, but stay away from then when you have other options. Remember, they could disqualify you for loans when you really need them.
Before your business needs a loan, start focusing on building a solid credit history. By doing so, you will open the doors to better loan offers and credit
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