How To Build Business Credit Without Using Personal Credit

Rochelle Burnside says, “Business credit is what lenders will evaluate to determine your creditworthiness.”

Business credit and personal credit separation are essential to building corporative credit for successful business deployment. But, this separation needs a proper step-to-step strategy and exemplary patience. It takes a long time as many actors are involved. 

Business incorporation always remains the first step in business credit building. Additionally, opening a bank account, establishing a business credit report, and linking a trading account is essential to raising a business credit score.

In this article, we’ll walk you through the critical information on how to build business credit without using personal credit.

How Important Is It To Have Your Personal Credit Up?

Many businesses close before their first return on investment when their personal credit is used in Business. In the end, their empty pocket adds insult to their injury. So, for every entrepreneur, it is essential to differentiate business credit and personal credit. But the personal and Business credits should be linked when there’s only a single proprietor. In this case, remember that the lender may consider that your personal and Business credit somewhere interferes with each other.

Personal credit means you are personally liable to pay a loan. On the other hand, business credit means your Business is responsible for paying the debt. In simple words, the debt will be returned from profit or assets.

Read Also: How to get a loan from the bank?

Steps To Build Up Business Credit

The following steps are the blueprint for building up business credit for your Business:

1. Registration of EIN

Incorporating a business EIN is the first step. It is an employer identification number that separates your personal and business credit. It gives identification to your Business.

For instance, sole proprietor, corporations, partnerships, and other business entities return their employer tax file with the EIN Iris gives. Moreover, when it is required to build business credit, the lender, vendor, and banker first check the business’s registration and previous tax return history to its state.  

For information on how to get EIN for your employees, visit the IRS website.

2. Introduce Business ~ Business Name and Landline number

The name of your business must be attractive to the customers. Also, give your business a professional name and establish a landline number and address. It makes it easy to understand your business and makes the analysis easy for any lender, vender, and banker.

3. Open bank accounts – especially saving account

Business incorporation opens a door towards the bank. A Bank account is crucial to establishing a trade line between the proprietor and other actors. For example, it mitigates the chances of friction during transactions and business credit building.

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Moreover, all your cash flow happens through this account. So, open a trading and savings account in any bank with the proper name of your business and business details. Opening a bank account is a straightforward process.

But, which type of account can help you better is a critical question. For instance, savings and current accounts cannot help you better in credit building, but these commercial accounts can help to keep your Business and personal credit separate.

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4. Make a more robust business credit report ~ Vital planning can grab lenders easily

A business credit report or financial report shows you’re following through with your idea and are thriving.

According to an English writer, following through contains your; focus, self-discipline, actions, and persistence. If your credit report shows these four things, you are near to building your business credit without using your credit. Moreover, business credit gathering companies compile this report. So, the essential components of a business credit report are given below:

a) Company Introduction

Company or business introduction contains; Professional company name, proper office address, national or international landline number, and organization email.

b) Business cause and administration: 

Your business case will show the type of business in which industry this business falls. It even answers the question, “What is the reason behind your business.” On the other hand, the business administration gives information about the number of employees, types of products, Sales, and number of branches.

c) Financial and Public Records 

Financial data includes; Current credit, estimated sales, return on investment, previous use of credit, and return on credit. But the personal record shows your tax return and judgment etc. This information clears your credibility for lenders, vendors, and banks. 

d) Collect information about regular Customers 

Some business credit report-gathering companies also collect information about your regular customers. Most companies highlight this information in their portfolio.

e) Take follow-ups 

Public opinion also plays an essential role in these reports.

So, keep your business credit report updated because it contains all the information that can open doors for credit, and you will not mix your personal credit with business credit.

f) Trade account ~ trade line between vendor and business

An English writer Hanson warns, “If you’re late by just a few days, those late payments may appear in your business credit reports.”

Trade account or trade line establishment is a factor in business credit reports. It is an established line between the proprietor and vendor where the payment can be made. So, it shows your self-discipline in the payment history of trades within due dates. Moreover, it also gives information about available credit.  

5. Raise your credit score

You must raise your credit score as it helps you get loan approval from the bank for your business. Borrowing money from the bank for your business development will assist you in keeping your personal credit on the safe side and raising the business credit. 

Wrap Up

In light of the above discussion, business credit must not be mixed with personal credit as it can leave you in a dilemma. This complex situation can lead to disaster, leaving you empty-headed. However, you can build business credit by registering your business, developing it better than your competitors, and taking loans from banks by raising your credit score. It’s better to do business and earn profit without using your personal credit.