How to Build Business Credit Without a Personal Guarantee

In this article, we dive into what you should do to build business credit without using a personal guarantee. Read on! Starting a business can be an exciting, yet intimidating venture to begin. While the rewards are great, the road that leads to greatness is long and winding. Typically, when starting a business you’ll use a mixture of cash and leverage, which can be done through credit cards, business loans or private investors.

This article, we are focusing on how you can build your business credit without putting your personal assets at risk. Not only does this protect you, but it also allows your business the ability to gain an identity. In order to establish a business as an entity, you will need to incorporate and obtain a Federal Tax ID. When you apply for a loan personal, you use your social security number but as a business, you will use the Fed Tax ID instead. Should anything happen to your business, this ensures you are not sought after personally.

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Build Business Credit With a Credit Card

First, you will likely need a line of credit for your business and obtaining a business credit card is a wonderful place to start. By obtaining a business credit card, the card is used in the name of your business and utilizes your businesses information. This is an effective way to build your credit because one, business credit cards are relatively easy to obtain. There are many financial institutions out there and ones that even specialize in businesses with little or no credit history. From there, you can begin purchasing items to run your business and show lenders and creditors that your business is able to properly handle debt to further business operations.

Business Banking Accounts Without Using A Personal Account

Next on our ways to build business credit is to begin opening the proper bank accounts for your business. If you’ve ever applied for personal credit, then you have likely seen how creditors will ask if you have a checking and/or a savings account. While it may seem minor, these types of account come up on reporting records and can show that your business is able to responsibly handle money. To go along with opening your accounts, you can set up auto pay for your monthly bills, ensuring your bills are never late.

Pay Your Business Credit Invoices On Time

Another way to effectively build your businesses credit without using a personal guarantee is to begin paying invoices in a timely manner. If your business chooses to obtain traditional lending, then many of those financial institutions will likely want proof that your accounts payable is respectable. This means ensure your invoices don’t go past 30 days, and ensuring payment is received. While this may not impact other means such as a business credit card, having low account payable shows creditors that your business is able to handle payments promptly.

Diversify Your Business Credit Portfolio

Operating a new business can seem difficult when it comes to the lending process, but that will ease as time goes on. However, if you have the ability it can prove useful to your business credit to obtain several different credit accounts. Typical accounts include a revolving line of credit, which can be used to purchase assets for your business or cover monthly reoccurring expenses. Another account to consider is a traditional business note that has fixed payments over a defined period of time. These can be used for larger asset purchases or even acquisitions.

While these require a greater business history, obtaining and paying on time with these notes can prove useful in obtaining financing later. The more you are able build business credit without using a personal guarantee, the more trusted your business will become, in turn allowing your business to obtain financing that much easier.

Make Sure Vendors Report Your Business Credit History

This is critical: you should make sure vendors are accurately reporting to the business credit bureaus, in order to grow and build your business credit without using a personal guarantee. One example of a business credit reporting agency is Dun & Bradstreet. Similar to a personal credit report, you’ll want to ensure your reports are capturing all prudent information and doing so correctly, as these will come up in future financing inquiries. The reason you want to choose these paths in obtaining credit for your business is first; it will allow you business to obtain its own credit profile.

Doing this is important because many businesses utilize leverage and if done properly, can be an effective asset to your business. Secondly, you will decouple your personal finances from your business finances utilizing these methods. Unless you’re running your business as a sole proprietorship, there should be your corporate entity between creditors and your personal assets.

Ensure you are utilizing your Federal tax number when obtaining these financing options. Lastly, if your business becomes large enough to be bought, potential buyers will look at the credit worthiness of your business as a factor in their purchasing process. Again, ensuring you’ve built your businesses credit without personal liability is critical. While there certainly are many other ways to positively impact your businesses credit without a personal guarantee, you will likely find these the most effective and practical. By obtaining one or two loans and utilizing them correctly, you will quickly realize the effectiveness of healthy business credit.