Building Business Credit: Top 10 Reasons to Start in 2012

Will your startup ambitions become a reality in 2012?

In a recent study, 70% of Americans indicated they want to start their own business, but many never take the leap because of lack of knowledge, direction and fear of failure.

Let’s face it, starting a business can be intimidating, and risk of the unknown is one major hurdle that few are willing to deal with.

With a job, there tends to be this perception of security and certainty. You show up for work, do your job, and collect a paycheck.

But in today’s economy, job security is nonexistent, and more people are increasingly embracing the idea of owning their own businesses. Business ownership and being in control of one’s income is the assurance that people are looking for.

Unfortunately, for the people who do make the leap and start a business, a large majority fail within five years, according to data from the U.S. Small Business Administration.

I bring this up because one of the major causes is lack of funding. While bootstrapping is common among startups, it can only take you so far and if the business fails, you may face a lot of personal debt and liability.

Here are my top ten reasons to start building credit in your company’s name:

1. Protect your personal credit ratings – With corporate credit, your business debts and financial obligations would report only on your company’s credit reports- not your personal reports. As a result, your personal debt to credit limit ratio would not be impacted by the debts of your company.

2. Protect the corporate veil – By separating personal and business credit, you eliminate the risk of co-mingling funds–and this includes the “co-mingling” of credit.

3. Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.

4. Conserve cash flow – Many suppliers, businesses, and vendors will extend credit to your business with net 30 to 60 day terms. This allows you to conserve cash while obtaining the products and services your business needs.

5. Limit accumulating personal debt – You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.

6. Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.

7. Build a business asset – A business with established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your businesses’ funding capacity and stability.

8. Limit inquiries – With business credit, you can stop relying on your personal credit to obtain financing, which limits the amount of inquiries being pulled on you personally.

9. Receive larger credit limits – You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business than you can as an individual.

10. SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individual. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.

As a startup, you will eventually need an influx of cash to cover an unforeseen expense, so start establishing credit in your company’s name today.

Quit jeopardizing your personal credit and run the risk of closing your doors due to a lack of funding. Make 2012 your year for establishing a creditworthy business!

Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.

About the Author

Marco Carbajo is CEO of the Business Credit Insiders Circle (www.businesscreditblogger.com), a step-by-step business credit building system providing lines of credit, trade credit and funding sources.