Here’s the biggest credit myth around:
“You can establish corporate credit with bad personal credit”
Anyone who tells you that is lying to you.
Ok, you can build corporate credit without using your personal credit, but it’s a slow, painfull processes. To do so, you must keep in mind that you need a few things in place.
First, you need a proper business structure. This means a seperate legal entity with a seperate EIN credit file, like I mentioned in the last post. It’s a good idea for asset protection anyway… get a corporation or LLC filed with the state, and an tax identification number from the IRS and you’re on your way.
The fastest was to grow business credit is with a personal guarantee. Even if you’ve had your business open for years, you may have personally guaranteed the debt. This isn’t so bad, as long as the lender is also reporting on your business credit as well. After a few years in business you may be able to get them to drop the personal guarantee.
So back to that myth… you can build business credit with poor personal credit. You can even get hundreds of thousands of dollars worth of it. But you won’t be able to buy a property, pay yourself, or hire an employee with that money. Most business credit that doesn’t involve personal credit is trade lines. A business trade line or trade credit is a line of credit that can only be used at the store that issued the credit. A classic example of this is an office supply store. You might get a $10,000 line of credit, but who needs $10,000 worth of staples?
Banks.. who give you real credit lines of real money you can use for anything, will want to see your presonal guarantee for the credit. It’s how real business owners operate.
Don’t have good personal credit? Become a credit millionaire today and get on the path to great business credit as well.
One Response to “The Biggest Credit Myth | Corporate Credit”
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Thanks for the info. There are people in internet land offering business lines of credit (cash). Is this possible for startup companies? Thanks for the response!