Establishing Business Credit Without Personal Risk

Starting a new business venture is risky.  Starting a business using personal credit is one of the riskiest mistakes made by new business owners and entrepreneurs.  Did you know that 92% of business owners are damaging their personal credit scores and don’t even realize it?  Because of the high failure rate of new business ventures, those who start their business with personal credit cards put their personal credit score and rating at risk.  Why take that risk when you can establish business credit, in the name of your business entity, without a personal guarantee? 

Most of us have personal credit scores established, and we are familiar with our scores at Equifax, Experian, and Trans Union.  Personal credit scores can be complicated, and although it takes years of well-disciplined borrowing to establish and maintain a good credit score, it can take only a few months and a few bad decisions to cause real damage.  Business owners who start their businesses with personal credit see their debt-to-credit ratios rise and their credit scores plummet.  

Business credit scores can be used to by businesses to obtain credit for the business with no personal guarantee or credit check required from the business owner.  Business credit scores are based on one factor – How have you paid your bills over the past 12 months?   

There are three main business credit reporting agencies:  Dunn & Bradstreet, Experian Business and Equifax Business.  The main credit score used in the business world is known as a PAYDEX? Score provided by Dun & Bradstreet.  The exact definition from Dunn & Bradstreet is: “The D&B PAYDEX? Score is D&B's unique dollar-weighted numerical indicator of how a firm paid its bills over the past year, based on trade experiences reported to D&B by various vendors.” 

Equifax Business provides business credit evaluations for over 22,000,000 small businesses and corporations and offers a business scoring credit model known as Equifax Small Business Enterprise/ Equifax Small Business Credit Risk Score.  This score was created to enhance risk assessment by predicting the probability of a new or existing small business customer becoming seriously delinquent on supplier accounts, or bankrupt, within a 12 month period. 

Experian Business provides business credit evaluations for over 27,000,000 small businesses and corporations and offers a business credit score known as Intelliscore.  Your Intelliscore will include items like your business credit scores and credit summary, key facts about your business, the corporate registration and contact information for your business, a summary collections and payments, your Uniform Commercial Code filing information, Banking information, insurance information and leasing information.  It will also include any bankruptcy filings, judgment filings and tax lien filings. 

Excellent business credit scores can usually be established in three to six months.  All that is required for an Excellent Business Credit Score is one - three accounts on your report that are paid-as-agreed.  Once your accounts are reported that you paid as agreed, you will have an 80 PAYDEX? Score or higher.  If you continue to pay your accounts on-time or early, your score will increase above 80 towards the high of 100.  A Dunn & Bradstreet PAYDEX? Score of 80 is the equivalent of a 750 FICO Score.

Over 50% of business fail in America, primarily due to under capitalization or a lack of funds.  It is imperative that you begin the process of building your business credit profile now - get access to the business credit you need, before you need it.  Build credit in your business name with no personal guarantee, keeping your personal finances separate, safe and secure.

Doug Smith is a 40 year consulting veteran in the small business and franchising arena and spends his time helping entrepreneurs understand the implications of lending and helping them secure the right lending product mix for their business or franchise project.  He is the founder of Biz Finance Solutions – www.bizfinancesolutions.com.  Besides providing both traditional and non-traditional approaches to business finance, he helps new and existing business owners establish business credit solely in the name of their business and helps those whose credit score has suffered in the current economic climate get on the right path for credit repair and improving their credit score.