When you first start your company, it is true that your personal credit is often used to determine your company’s credit worthiness. This does not mean, however, that a company’s credit is built and/or judged in the same way that a person’s credit is judged.
In this article, we are going to teach you some of the things that you can do to build and–should disaster strike (though we hope it doesn’t)–repair your company’s credit standing.
Start With Yourself
The first time you try to open a line of credit for your business, you can be absolutely sure that the lender will look at your personal credit history to determine your company’s credit worthiness. They will evaluate your personal credit history against your current company’s bank statements and use the two factors to determine whether or not to extend credit to you as a company. This means that you need to get a copy of your credit report pronto. Then, as several Creditrepair.com Facebook posts discuss, you must learn to identify errors in your report and take actions to fix those errors.
Legally Separate Yourself
This sounds counter-intuitive to what we just said but it isn’t. It is important that a lender or creditor understands that your business is not you. Here are some of the things that you need to do to accomplish this goal:
- Set up an EIN
- Set up a physical address for your company that is not your home address
- Set up a separate phone line for your company
- Create a business plan
- Get a business license
- Set up a foolproof accounting system (or hire an accountant)
- Incorporate your company (this is also helpful for protecting your personal credit should something go awry in your company)
You can do all of these things even if you are running your company out of your garage. Virtual workspaces are a great way to set up a physical address for your business. You can easily set up a dedicated phone like via Skype or Google. The rest are a little more complicated and if you aren’t sure how to do them, make an appointment with your local SBA office to help you figure them out.
Build Up Trade Credit
Trade credit is the credit that is extended to you by your company’s suppliers. It works sort of like a tab at a bar, but over a longer term.
For example, you need furniture for your office so you open a trade account with a local furniture store and they charge the cost of your furniture to that account. You, then, make payments to that account just like you would to a loan or credit card. The supplier reports your payment history to the business credit bureaus.
It’s a fantastic way to get the things you need without going through extensive credit and background checks.
What to do When Things Go Wrong
What happens if, in spite of your good intentions, you damage your company’s credit? The first thing you need to do if you find yourself in the financial weeds is call all of your company’s creditors and let them know the situation. Ask them to negotiate a new repayment deal with you that is more affordable and easier to pay. Most creditors will do this because they know that, if worse comes to worse and you declare bankruptcy, they won’t get any of the money they are owed. There are several steps to this process and it can seem intimidating but the Chron does a great job of breaking it down.
Remember: like personal credit, business credit can fluctuate and change over time. You can do damage but that damage is often repairable! Even so: do your best to be responsible and heed the advice given to you by any financial experts you might have enlisted to help with your credit and financial situation.