Has anyone taken the steps towards establishing business credit separate from your personal credit for things related to your business? If so, what was the process like?

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Nikki Johnson
The Millionaire's Assistant™

When I started my practice ten years ago.... it was totally on a shoe string. Looking back, it would have been much easier financially had I taken a loan to finance it... but there's also the satisfaction of knowing that I built it from the ground up with no outside help.... just a lot of old fashioned hard work! Because I'm a sole proprietor, my business and personal credit are still one and the same. If I had it to do over again, I'd have formed an LLC and separated my business from my personal finances a long time ago. I may do that still at some point soon.

I know our bank offers credit cards as part of the business banking package, and there are also secured credit cards you can get for a business the same as for an individual [allowing you to slowly build good credit] but I've not taken advantage of either option. Of course, if you're looking for a loan/funding that's a different story and a secured card or small balance credit card probably wouldn't help you.

If it's a large load you're after and you do pursue this I'll be interested to hear what your experience is like.

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I think that we sometimes don't see the value in having a separation between business and personal things. As I am on the road to restructuring my business, my first step was obtaining an LLC and a EIN. This also serves as a form of protection where liability is concerned. We live in a VERY litigious society and you can never be too careful.

The next thing I did was speak with an accountant and she agreed with me, it's best to make a separation between what's business and what's personal. It's helpful at tax time. It's helpful for IRS purposes (filing 1 under your business and another return under your social).

After that, I began seeking out starting some basic business credit accounts. Just like a SSN, your EIN needs to establish some credit. This means that 1 year or 3 years down the line, if you want to expand, or do anything "major" including getting a business loan, it can be done so under your business name and EIN and not your social - which also means that if your business has any problems financially, they can go after the business itself and not you as an individual.

The rich have been doing this for years. It's how Trump can declare bankruptcy and still be a millionaire - he keeps it separated.

Tess, what bank are you referring to. That's my next step - researching business bank accounts.

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Nikki Johnson
The Millionaire's Assistant™

I'm curious, if you don't mind me asking, what your ultimate goal is with the business credit?
I have an EIN and we're registered as an LLP, but beyond a basic business bank account what do you mean by 'credit'?

So curious now what you're up to...

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I have not tried to get business credit for my business as yet; however, I did get business credit for other businesses. The process can be long and arduous, and there are a number of companies out there that claim to help you get business credit. The problem is, they are extremely expensive (I've seen them range from $1,500 to $10,000... if I had $10,000 to spend, I don't think I would need business credit).

The best thing to do is, once your business is registered, open a bank account, get a dedicated phone line in the business's name from your local telephone company, register with Dun and Bradstreet and build your credit profile. Once that is completed, try to open a supply account with Staples or another D&B reporting agency. After a couple months, try to get an account with Pitney Bowes for postage (especially if you have a lot of outgoing mail), and at the same time, they will give you a credit account. After some time with them, they will offer you a business credit card through their bank. Also, if you can manage/afford it, get a merchant account with a credit card processing organization. This will allow you to accept credit cards, but it also builds credit for your business.

While these things seem small and tends to take a lot of time to setup, doing well with your small credit will improve your business credit rating. Remember, starting off small and only taking on credit that you can manage leads to bigger credit accounts in the future.

I hope this helps.

Also, don't forget, as you get started, you may be asked to give a personal guarantee for business credit accounts... so you will utilize your personal credit to build your business credit.

One thing I forgot to mention in my earlier post: also consider getting a business cell phone (unlike personal cell phones, business cell phones do not replace business landlines... you still need to have landline phones because creditors check these things). Pretty much, the more established you are, the more credit you will be afforded.

Finally, if you are looking for a business loan (greater than $10,000), you will more than likely need a business plan. As with anything you do, you should have an established plan. When you apply for business credit, banks, credits and investors will ask for a copy of your business plan.

I hope all of this information helps. If you need help getting started (e.g., pointing you to agencies that can help), please feel free to email me at damon@virtualassistga.com.

Regards,

Damon

Tess, how large is your organization? The larger you are, the more likely you will need business credit. Do you ship large packages? If so, you may need a UPS or FedEx account. With business credit, you will not have to pay up front. You may have a large account that requires the use of a lot of supplies. Now-a-days, supplies are not cheap. Why pay out of pocket up front when you can pay after the project is completed, submitted and paid-in-full? In other words, why take money out of your pocket or from your business when credit will cover the expenses for you?

Establishing credit accounts also allows you to check other businesses' credit before expending time and money for clients who may not pay you when the project is completed.

These are just my thoughts... and I pray you do not mind me sharing them with you.

I have business credit for my corporation and I have an S-Corp. I charge all of my business supplies on my credit card for easy accounting purposes and pay that off monthly. Additionally, if I had a large expense like my computer went out or my laser printer, I can go get one without worry. When I buy a computer, I don't buy a basic computer so it isn't cheap. I also charge my printing and any other expenses. In the event that my business were to grow too rapidly, I would have business credit to support the growth.

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www.marlexsolutions.com

This is a great example of how to use business credit and the benefits of credit. I just purchased a new computer and several different software to support my business. I purchased this out of pocket. If I took the time to build business credit, I could have purchased these items now and pay for it later either all at once or over time. Because my business is relatively new, I have no business credit but I will begin working on building it starting 2011.

Originally Posted by elleenestegard

When I started my practice ten years ago.... it was totally on a shoe string. Looking back, it would have been much easier financially had I taken a loan to finance it... but there's also the satisfaction of knowing that I built it from the ground up with no outside help.... just a lot of old fashioned hard work! Because I'm a sole proprietor, my business and personal credit are still one and the same. If I had it to do over again, I'd have formed an LLC and separated my business from my personal finances a long time ago. I may do that still at some point soon.