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Top Five Reasons To Establish Business Credit and Separate Personal From Business Credit

by Celia Sue Hecht

A majority of business owners start a business by utilizing personal funds from savings, retirement lump sum, or a loan from family members. Others take part-time jobs so that they'll have a steady source of income while their business gets going. And still others max out their personal credit cards, refinance a mortgage or personally guarantee business loans using other major assets as collateral in their strategy to launch their business and get it off the ground.

Forty-six percent of small firms utilize their personal credit cards for business purposes according to a study published in 2003 by the Small Business Administration. The most frequently used kinds of credit were personal and business credit cards, lines of credit and vehicle loans.

Small business use of credit cards is on the rise, and financing a startup business with credit is an emerging trend: Bank loans under $100,000 increased 45 percent from 10.8 million in June 2001 to 15.65 million in June 2002, according to a Small Business Administration study released in December on small business lending in the United States.

Building your business credit will improve your business by saving both time and money, separate personal credit from business credit, meet current lending needs and help you prepare for future lending needs, can provide cash in your business when it's needed, extends cash flow, lowers interest rates, builds credibility for your business, protects personal assets and allows purchases of vehicles, equipment, computers and other items with no personal guarantees.

1. Even in these tough economic times establishing business credit can increase the chances that your business will stay afloat and help you beat the odds.

2. One of the biggest advantages of creating a good corporate credit profile is saving money. By obtaining a favorable credit score, business owners can actually lower the interest they pay on loans and leases. As a result of freeing up liquid capital, business owners can also take advantage of prepayment discounts with vendors, add employees, and build up inventory.

3. Enhance your company’s image. Other business owners can check your company's credit report to see if they want to do business with you, which can make the difference between obtaining new clients and customers or not. A company with its own credit history has increased credibility and is perceived to have a higher level of professionalism with the government and other businesses.

4. Your personal credit can become tied up and even negatively impacted. For example, a landscaper recently received a government contract. Since he had no corporate credit, although he had just incorporated, he had to utilize his personal credit to purchase three new trucks for the business. When he applied for a mortgage for his new home, much to his dismay, he discovered that he could not get the interest rate he had originally qualified for because the three new trucks were now on his personal credit report.

5. If your business should go out of business, without corporate credit, you would still be legally and personally responsible for any business expenditures even after the company goes belly up.

Do you know the answers to these important questions?

* What rights does a business owner have if there is incorrect information on a credit report?

* How do I obtain a business credit score?

* What do business lenders look at in order to extend business credit?

* Where do you find companies that grant credit?

* Which companies report to the business credit bureaus?

* What credit cards companies do not require personal guarantees?

For the answers to these questions and more information, go to or call for a no charge 30-minute consultation at 877-209-0450.

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About the Author:

Celia Sue Hecht is a published writer who has written hundreds of articles for numerous publications including Nevada Business Journal, Reno Gazette Journal, NorthBayBiz magazine, Senior Spectrum, Auburn Journal, etc. and has assisted clients with obtaining media coverage in LA Times, NY Times, Entrepreneur magazine, SF Chronicle, Marin Independent Journal, Boston Globe, Dallas Morning News, Las Vegas Review Journal, Las Vegas SUN, and many other publications. She is also co-author of five romantic travel books. She can be reached at 888-260-4673 or via email at [email protected].

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