If you are trying to start or maintain your business, then you know that access to capital is one of the most difficult things that entrepreneurs, small business and franchisees deal with. It is one of the most important things that’s needed to help your business fund salaries and operations, purchase equipment and invest in blue sky ideas. In our practice, we see many business owners having to utilize their personal credit history to fund operation and expansion initiatives of their business until it can demonstrate financially the ability to repay over time.
Maintaining a good credit score can make the difference between accessing a credit line, opening a credit card or borrowing on credit with vendors and lenders. Many financial institutions, suppliers, partners and even prospective customers use it as a basis to determine your credit worthiness. They want to make an assessment early on of the likelihood, whether you, the borrower, will default on their debt obligation. Before a business can rely on its own credit, it will have to rely solely on the personal credit of its owner, this is why it is important to maintain your credit score to improve the financial success of your business.
There are three credit rating agencies that maintain files on individual borrowers: Experian, Equifax and TransUnion. Dun and Bradstreet (DnB) is the agency that provides credit history on businesses. Until your business can build its credit history on DnB, here are some tips to help you safeguard your personal credit:
- Pay on time.
- Manage your debt.
- Don’t close old credit cards.
- Review credit report routinely.
- Keep balances below 50 percent of credit limit.
- Keep charges within established credit limit.
- Limit the application for new credit cards and loans.
There is a big difference between personal versus business credit, your social security number is used to track your personal credit history while your employer tax identification number is normally used to track the credit history of your business. The companies issuing and expending credit typically report your information to the credit bureaus mentioned above. These agencies produce credit reports based on what has been reported and can be accessed by prospective creditors.
It makes good business sense to maintain your credit score; it will help you lower your interest rate on credit cards and loans so that you can re-invest the savings back into your business and manage your cash flow. A good score can also help you to take risk and manage the finances of your business.
Gerri Lazarre, CPA, MsTax is a certified public accountant and principal with TriMergeCPA and TriMergeTax in Miami, Florida. Lazarre specializes in providing professional advisory services in the areas of accounting, audit and tax planning to individuals, businesses and nonprofit organizations for more than 13 years. For more information, please visit www.TriMergeTax.com and www.TriMergeCPA.com. Connect with Gerri on social media at Twitter.com/TriMergeCPA, Twitter.com/TriMergeTax or https://twitter.com/GerriLazarreCPA.