The credit squeeze is dominating the news. Many people are having their personal credit being destroyed due to poor decisions regarding mortgages and personal spending. What is’t being talked about as often is how those same poor personal credit scores are going to negatively impact small business owners and business credit?

Many of you are saying, “What are you talking about, personal credit and business credit are 2 different things aren’t they”

That’s what the T.V. infomercials and seminar hucksters would have you believe. The truth is if you never built up your business credit, or done it the right way, you may not realize that there are different types of business credit and when you are just establishing that credit your personal guarantee is needed.

Sure you may have been in business for 8 years and paid all of your vendors on time, but if they never reported your good pay status the credit bureaus don’t know you exist. Applying for vendor or trade lines of credit is often started by using your social security number to start building up your scores.

With Dun and Bradstreet, Experian, and other agencies holding so much power for the small business person to use other people’s money to grow their business learning how to develop business credit is a worthwhile investment. There is a big problem though; everyone has a different answer about how to do this the right way.

As the CEO of Nevada Corporate Planners, has been researching the subject for over a year. He has had top bank officials in meetings and negotiations for hours on end. He has listened to the seminar speakers promise the world and deliver frustration. Scott has also interviewed some of the top experts in the fields of both business and personal credit.

I’ve never seen as much confusion about any subject since researching entity structuring. Personal credit does powerfully impact how a business owner can start to establish credit for their business, but nobody wants to talk about that for the new business owner.

Can you get business credit with less than perfect credit? The answer is yes and no. You see it’s just like running a business, every little bit of information can have a dramatic impact on whether or not you can build your business credit lines and start growing your business. Unfortunately this article can’t give you the “easy answer”?, because there isn’t one.

Each business owner must discover, research, and just dive in to learn how to understand just what each creditor is looking for and how to fill out their questionnaires.

So if you’re in a situation that has your personal credit teetering on the edge of being damaged and you want to expand your business this year or in the future you should commit to some time studying how to improve both personal scores and establishing business credit the smart way.

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Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc.  Over the past 10 years NCP has assisted more than 4,500 business owners form LLCs and corporations to get the credit they need! Visit for insight and help for credit needs.

Business credit is similar to your own personal credit. The key difference is that this is for your business. Smart business people separate their credit histories so problems don’t overlap and negatively affect two lines of credit instead of just one if tragedy strikes.

Good business credit gives you the ability to get favorable loans free of high interest rates or personal guarantee requirements. With high enough credit, you can pay back vendors days after receiving their product or service or extend payment if needed. Good credit gives your business a certain level of respectability and entices customers to do business with you.

Now that you know the benefits of good business credit, I’m sure you’re going to want to know how to get some of this great credit for yourself. Here’s the secret of how you do it.

First, you make sure that you aren’t using your personal credit for your business. This means taking out loans and opening up lines of credit in your name for the business. Don’t do that. If you’re doing this in your own name, the business will never get credit of its own. This is to say nothing of ruining your own personal credit if something happens to the business.

Second, we make sure that you’re not longer a sole-proprietorship or a partnership. You want to incorporate your business and make it a separate business entity. This means that you and your business are considered to be two different people under the law even though you (or your partners and you) will continue to control your business.

Third, you enroll in a business credit builder program. These programs exist to give businesses lines of credit with participating vendors. Here’s how it works without a business credit builder program. Usually a business tries to open up a line of credit with a vendor. Assuming they don’t fail, they get a line of credit. These lines of credit usually have unfavorable terms like payment ahead of delivery or high rates. Once the relationship starts, the vendor usually does nothing to help you build credit. If you pay your bills on time, that’s fine. They just won’t tell anyone that you’re being a good customer. If you miss a payment, then they’ll do something. They’ll report your missed payment to the reporting agencies. So if you do well, then nothing happens. If you do badly, then you get a negative mark on your record.

So how does it work with a business credit builder? You get into the program and they help you select from vendors in the area that are open to extending favorable terms and opening up business relationships. All of these vendors are obligated to report your good payment history to the credit agencies. By paying your bills on time, you get positive marks on your credit report and before you know it, you’ll have a great credit report. In addition, most good business credit building companies will work with you help you monitor your credit report, apply for favorable loans, and to make sure you’re properly filing out all the paperwork.

It’s the surest ethical way to build up your business credit!

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Scott Letourneau is the CEO of NCP, Inc. and is offering free business credit training to interested business owners across the country. For a webinar 90 minute class where Scott corners a national bank offical and asks the “Hard Questions” visit our free business credit training page.

A Personal Guarantee is a promise by you and your business partners that you will repay the loan. If your business goes under or you can’t send in your payment, this has no bearing on the repayment of the loan to the bank. You and your business personally guaranteed the loan would be prepaid. If you have to sell off your business and your personal assets due to a judgment then so be it. You personally guaranteed it. If this means non business items such as family heirlooms are sold at 10% of their value are sold to pay the bank, they don’t care. They want their money and they’ll do whatever they legally need to do to get it.

As bad as it sounds, it can get even worse in some cases. If the loan was personally guaranteed by all business partners, you could be liable for the entire loan. That means that even if you’re just a 10% owner in the business, you could be liable for 100% of the loan. What if you’re a minor partner in several businesses? Do you want to have to personally guarantee a loan that defaults due to someone else’s mistake?

How can we avoid this? Here’s couple of solutions.

First, you need to build up your business credit. Good enough business credit will give you a bit of leverage over the bank. There are companies that will guide you to getting better business credit. Once you have good credit, if the bank insists on the need to personally guarantee a loan just state that your credit score is high enough and should be sufficient to cover the loan. Even if you can’t void this requirement a good negotiator (or company acting on your behalf) can reduce the personal requirement to just 25% of the loan. Hey it’s better than having to repay the entire amount especially if you’re just a 10% percent partner.

But the best solution is to avoid having to personally guarantee all together. Ask yourself if you really need the entire loan amount. Can you borrow 75% of the original amount? That may be just what you need to avoid the guarantee. Will the bank agree to a shorter payment plan? What if you’re able to repay the bank back within three years as opposed to four? Will they avoid the requirement this way? They just might!

Just remember that banks are in the business of lending money. They need to lend money if they’re to be profitable. If the terms aren’t acceptable to you, just politely walk away. Don’t burn your bridges but very politely state that the terms won’t work for you and leave the meeting. You may find a message for you in a few days asking you to discuss the loan again. You never know, it’s happened before!

Remember, with every problem there’s a solution if you look hard enough. If what’s presented to you isn’t working, then dig until you find something that works! Sometimes the solution is just another effort away.

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Scott Letourneau is the CEO of NCP, Inc. and is offering free business credit training to interested business owners across the country. For a webinar 90 minute class where Scott corners a national bank offical and asks the “Hard Questions” visit our free business credit training page.

When you look into getting items and services for your business, the goal is to minimize your personal guarantee and avoid touching your personal credit. A personal guarantee makes you and your partners liable if the loan ever defaults. In bad cases, your personal assets could be sold off to pay for a loan. You don’t want to do that.

Let’s look into Trade Credit and Business Financing as options for your business.

Business credit is usually credit between two businesses. If you case it would be between your business and another entity such as Dell computers. If you wanted to get computers from Dell, they would issue business credit in your business name and you would get your computers for your business. This is also known as trade credit. Usually you’re limited to what you can purchase since it’s with a single business. In the Dell example, you’re not going to be able to use Dell’s line of credit to purchase an automobile.

Usually with this form or credit there’s no need for a personal guarantee. Some vendors may still ask for a personal guarantee but it’s fairly uncommon. The higher your business credit score the less likely it will be that they will ask for a personal guarantee.

The other form of financing is business financing. Business financing are lines of credit for your business usually done though a bank. Banks will always want something secured. If they can’t do it via an asset then they’ll want a personal guarantee. This puts your personal items such as your own car, home, and family heirlooms at risk. If you default on the loan, a judge can order your assets to be sold to repay the loan.

The advantage is that you get more options in relation to items or services. It just depends on how you got the loan or financing. If you went into the bank and asked for financing for a truck then the money should only be used for a truck. However if the financing was for a loan, then you have more leeway. With the monies it’s up to you to decide what you should ethically get. You’ll probably get what was in your business plan but if there’s money left over then there’s more options.

Here are some tips to help you with your credit.

1. Try to get your debt to not show up on your credit report.
a. Sometimes businesses won’t report the debt if everything is ok. If this doesn’t happen then your debt to income ratio looks better. This gives you options for another loan if an opportunity comes your way.

2. Check your personal credit reports.
a. A good online service such as annualcreditreport.com or myfico.com allows you to check and monitor your credit reports. This will help you track mistakes and fix them quickly.

3. Separate your credit reports.
a. Make sure to get credit in your business name. Your personal credit is an important asset and you don’t want a business mistake to keep you from being able to get a house, automobile or anything else that’s important to you in the future.

Following those tips should help to protect you and your business. Please, don’t get into the habit of damaging your personal credit. It’s your number one asset. You could always start another business but you can’t legally start another you.

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About the Author

Scott Letourneau is the CEO of NCP, Inc. and an authority in helping people form entities, grow their business, and protecting the assets of that business. For additional information: 702-367-7373 or visit Nevada Corporate Planners to Build Your Business and Trade Credit.

You’re a new business owner and decide you need items and services for your business. You take out a loan and your business is off to a great start. A few months pass by, so you take out another loan or open more lines of credit for necessities. You repeat this process a few times during the year. You’re trying to be a good business owner by growing your business but you’re making a critical mistake. You’re using your personal credit for your business. This is bad. It’s very bad and you’re courting disaster. Let me tell you why.

Most people only take out a major loan once a year. How does it look to the credit agencies if you’re taking out several major loans per year? It looks bad. It looks bad enough for the three major reporting agencies to lower your personal credit score. Once that happens, you’re going to find it harder to quality for loans with favorable terms or open up new lines of credit. If your business is dependant on you being able to borrow money then you my friend are in serious trouble. Not only will your business be in trouble but your personal life is now tied to your business. Are you going to qualify for that home loan if there are loans for expensive equipment on your credit report? I think yourre going to lose that house, the new car, and the college loans for your children.

So what’s the solution? The solution is to stop using personal funds and credit to use with your business. Let your business earn its own credit and leave your personal credit alone. Ok, it sounds like a good solution but how do we do that? We make your business its own business entity. We split you and your business into two different entities. You still control your business but your business becomes it’s ‘own person’ with its own credit and responsibilities.

By incorporating your company, you give it the legal right to take on lines of credit, apply for loans and to build its own business credit. After this you enroll in a business credit builder program. A business credit builder program helps you open up lines of credit with vendors. These vendors (unlike many) report your positive actions to business credit reporting agencies like Burns and Bradstreet. Many business don’t know that many vendors only report negative actions and never report positive payment histories. That hurts you and never helps your rating. When vendors participate and send in positive reports your rating improves.

It really is the smart thing to do. With a high business credit, you’ll be able to take out loans with favorable terms. Not only will you save money but you’ll find it less likely to have to personally guarantee the loan and put your assets at risk. Businesses can do credit checks on you and will tend to choose high rated businesses. That’s more customers for you! It’s really win-win all around.

What are your thoughts? We want your opintion. Please leave a comment and let us know what you think.