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If you think that the same rules of personal loans apply for a business loan, think again! Though they are similar in many ways, the rules of personal and business credit are very different in nature, and accordingly, so too are the rules governing the loans. In this article, we’ll take a look at how different these properties are and how you can use them to handle business loans well.

Let’s start with credit. Personal credit is tied to you, but business credit is tied to a fictional business entity. In order to establish this arrangement, you need to set up a business in the form of either an LLC or a C-corp. The business must then be registered with the IRS for an employer identification number and must be registered afterwards with Dun & Bradstreet or Experian in order to start a credit profile. The resulting profile is assigned a Paydex score of 0-100, with 75 and above being considered excellent.

Credit is then apportioned based on a wider range of criteria than applies to personal credit. Unlike home loans, when you go to apply for a business loan you will find that the lender is looking for profitability and business longevity, not just whether your business can pay its bills on time. Building a good credit score requires a history of sustainability and profits, which, obviously require you to employ more tactics than building personal credit.

Finally, when you apply for a business loan, be prepared to submit a business proposal. This is a detailed outline of your business, starting with the history and mechanics of the business, the identity of the managing members, and follow this with an analysis of the business market and the financial holdings of your business. The goal of a business proposal is to tell the lender that they are going to get a sound return on investment on their loans.

Knowing these things can help you prepare when it comes time to apply for a business loan. Be sure that you understand how business credit works well before you dive in!

This Business article was written by Mark Karavan on 2/1/2010