Building credit for your business is like bringing along an umbrella if you expect it is going to rain. Your business may need access to credit to help cover unexpected costs. If you have not prepared for the unexpected, then you could be turned down for a loan and ultimately face serious debt. Building business credit is an active process required to maintain good standing with creditors, lenders, and customers.Good credit helps to establish lower-interest loans, business credit cards, and reliability with suppliers.
Failing to follow the proper credit building steps, and properly monitoring your business credit score, could result in serious financial consequences. For example,if you use your name to open a business credit card for acompanyusing the business EIN and name, and payments are not made correctly or on time, you could be held personally liable. Generally, you are required to personally guarantee a business credit card in your name, which means your business and personal credit are at risk.The same concept applies to using personal funds to pay rent or buy supplies for your business. If payments are not made on time, creditors will hold you personally responsible for the financial obligations of the business. Over extending a line of credit by borrowing more than you can afford and missing payments will cause a blow to your business credit score.
To learn more about the right steps to take to build and protect your business credit, visit our Guide to Building and Maintaining Business Credit.
According to the Federal Reserve Banks of New York, Atlanta, Cleveland, and Philadelphia, creditors turned down 45 percent of potential small business borrowers because of their credit scores. Recovering from a low credit score is more difficult and costly than actively monitoring your credit and making financial adjustments when necessary. Because your business credit score can be viewed by anyone, your business’s reputation and ability to appropriately borrow from lenders is crucial.
A positive credit profile may attract new customers or clients by exhibiting your business’s reliability.It may cause lenders and creditors to be more willing to provide financial assistance and create a good standing with the IRS.
Prepare for the storm, and don’t forget your umbrella. Keep information current with credit bureaus, form lines of credit with third-party vendors, borrow from reporting lenders, and be responsible with your payments. Following these few steps will create strong business credit and get you on the right path to business success.
Contact one of our Fort Worth Business Attorneys to assist you with your business legal needs. You can reach us at (817) 808-1718 or by email at contactus@mastellerlaw.com. Feel free to utilize our Contact Form to send us a message through our website as well.
