It Is Crucial For The Expansion Of Your Business To Open A Corporate Credit Profile

Establish a Corporate Credit Profile to Support Business Expansion When attempts to acquire lines of business credit or loans are declined, many business owners are surprised to discover that qualifying for corporate credit requires an established and proven corporate credit history. Sole proprietorships and partnerships are often established using the personal credit history of the owners, but the transition to corporate credit is never made. Even corporations will depend on personal credit to jumpstart approval of purchases in the earliest months of business. There never seems to be a good time to switch over to business credit practices. Some accountants will remind business owners to separate the two credit histories, but they do not explain what a corporate credit profile is, how to establish one, or why separating the business credit from the personal credit history is essential for business success.

What is Corporate Credit?

Businesses are recognized as separate entities by creditors including suppliers, banks, and credit bureaus. When the business is new, many owners are asked to secure all business accounts with personal credit cards and loans. Using personal assets to secure equipment loans becomes a habit to speed the approval process. Personal credit cards are used because of the perks associated with the card, but business accounts are not opened because of the approval process that requires an established credit history.

When the corporate credit profile is established, the payment habits of the business are tracked, and the credit profile is recognized in the business division of the banking sector. Banks evaluate the lending risk of the business as a separate entity, and the business credit history proves the ability of the business to pay bills and repay debt in a timely manner.

Just as the IRS requires all businesses to have a tax identification number, the credit and banking industry requires the same tax ID to have an associated credit history. Entries in the business credit bureaus that are directly associated with the business act as proof of the existence of the business and the business payment records.

How to Establish Corporate Credit?

The first requirement for the business credit industry to recognize a business entity is to have an established business phone line that is listed with directory assistance.

The second mandatory requirement is to keep the business license current, active, and in good standing. In certain industries, the business license is dependent on certifications that must be maintained.

After these first two steps have been taken, register the business with each of the appropriate business credit bureaus: FDInsight, D&B, Experian Business, BusinessCreditUSA, Equifax Business, and ClientChecker. Each of these bureaus specializes in certain industries and types of businesses.

Find businesses that will offer credit based on business credit without securing the debt with personal credit cards or assets. These businesses must also agree to report the payment record to the business credit bureaus. There are existing directories of these businesses available online.

Replace all personal credit cards with business credit cards even if those cards must be secured at first. Make small initial purchases and follow the process required by the issuing banks. If the first applications are declined, build the business credit in other areas and then send new applications for business credit cards.

Evaluate the business plan and determine the types of credit that must be secured in the future. Inquire about bank requirements to be approved for loans associated with capital investment, equipment replacement, and land and building purchases. Fulfill the stated credit requirements prior to needing to secure these lines of credit for business expansion.

Because of the many types of business credit, the corporate credit profile will be established more quickly than personal credit. The importance of a strong business credit history cannot be overstated. Pay every bill on time to maintain positive credit bureau information.

Why Separate Corporate Credit from Personal?

Personal credit activities can be negatively impacted by the credit practices of the business. If the business is strapped for cash, the private application may be declined for car loans and home purchase and refinance loans because the two credit records appear to be merged.

Business time and money are saved when the corporate credit profile is established in every area of the business. Shorter supply fulfillment times are realized when positive credit information exists for the business.

When emergency funds are needed, the loan approval process is shortened because the bank can see the proven financial track record of the business.

Business expansion is not stifled by insufficient corporate credit history. Financial needs can be met with less effort and shorter approval processes.

Corporate entities with high credit scores will pay lower interest rates. Proven ability to repay debt reduces the perceived risk to the lender and is rewarded through lower costs.

Professional relationships are established more quickly when other business entities can see that your company pays its bills on time. Ordering from new suppliers will not be delayed by the need to pay for deliveries immediately until credit is established.

Conclusion

For a business entity to be respected within the financial sector, a corporate credit profile must be established long before credit is required to fulfill business expansion needs. Every year more requirements are added for loan and credit qualification, so every business owner must be willing to make necessary business process changes when using credit to stay in compliance. Many sources of good information exist to guide savvy owners through the maze. Read multiple publications and websites to stay up to date on new ways to improve your corporate credit standing and address any items on the history that may be inaccurate. Research the differences between the personal credit laws and the corporate credit laws because the differences will impact your decisions. Whenever possible establish professional associations with financial advisers that have your best interest at heart. Ask difficult questions and stay ahead of credit requirements to prevent business slowdowns associated with credit denials. Guard your corporate credit because the reputation of your business depends on a solid credit history that proves liquidity and resilience.