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Establishing corporate business credit is a crucial component in the formation of a functional and lucrative business. Corporate business credit is separate from personal credit, and allows a level of ease and flexibility that would otherwise require entrepreneurs to dip into and sabotage their own personal credit.
The dangers of using personal credit for business are not merely a gamble (that is, it’s not just a potential bad situation that occurs if the business goes bankrupt), it’s doubly bad because of the credit pulls that take place. Business credit requires more pulls on the credit score than personal credit does, and personal credit is designed to have a threshold of pulls that can be made before adverse effects on the credit score begin taking place. Without having them separated, if you begin adding a host of business credit pulls onto your personal credit, negative effects will begin taking place even before you factor in the success or lack thereof of the business. That’s how important corporate business credit is.
For corporate business credit to be built, the owner of the business must first build a credit profile with Dun & Bradstreet, Experian, Equifax or Business Credit USA (most small businesses will find themselves setting up with one of the first two options). The business must already be registered with the IRS and have an Employer Identification Number, and have a dedicated bank account and phone line for the business.
Corporate business credit follows slightly different rules than personal credit. The Paydex score issued by Dun & Bradstreet is the business equivalent of the Fair Isaac score for personal credit. Paydex follows a numerical system of 0-100, with 75 being considered excellent, and reports the reliability of repayment for business merchants. However, when being considered for a business loan, more factors than just your Paydex score have to be considered. The profitability of your industry, as well as its lifespan and some other peculiar factors like whether the managing member is a homeowner tend to factor into lenders’ decisions as well. The mere fact that you have corporate business credit rather than personal business credit is more than likely to be a contributing factor to a lender’s decision, so it is an excellent idea to have if you want a successful, stable business.