The NUMBER ONE THING that Small Business Owners (SBOs) need to realize is that a PERSONAL CREDIT PROFILE is similar, yet different, than a BUSINESS CREDIT PROFILE.
A Personal Credit Profile is, for the most part, set on automatic.
Meaning that, as consumers, we go out and apply for, and get approved for, an auto loan, a mortgage, a credit card, gas card, department store card, or anything else on credit, and most credit card companies and most banks automatically report our payment information (among other things) to the credit reporting agencies (CRAs), which results in a sort of ‘report card’, and we receive a credit score, or ‘grade’, revealing to other credit granting companies how we handle credit.
A Business Credit Profile is similar, yet different, in that, it is NOT set on automatic.
When a Small Business Owner applies for business credit with a vendor or a supplier and receives business credit, there is no assurance that the vendor or supplier is going to report anything to the credit reporting agencies.
SBOs who are not aware of this, can be devastated, if after months or years of ‘good-and-on-time-transactions’ with vendors and suppliers, they discover that none of their ‘on-time-payments’ have been reported to their business credit profile.
So, as SBOs, if we are aware of this HUGE difference with Personal Credit and Business Credit, we should remain diligent and take a ‘hands-on-approach’ as we actively build our business credit profile.
Keeping your PERSONAL CREDIT separate from your BUSINESS CREDIT is a great business strategy, as this approach may insulate your personal credit if the business side happens to not do so well at some point, but only if, you set up your business structure in the right way.
By establishing BUSINESS CREDIT, you can begin to build a solid business credit profile for the business.
This strategy can place your business in a very strong negotiating position when seeking favorable bank financing, or when structuring net terms with vendors and suppliers, and also when negotiating the best lease terms for warehouse and office space.
Let’s not forget, if and when you establish a solid business credit profile, your good business credit score gives your business access to many more funding sources, which can place your business in a great position to move quickly, and take advantage of opportunities, by accessing working capital fast and at very attractive rates and terms.
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