Even if your business is virtually a one-man band (which is to say, you are self-employed), it’s not a bad idea to establish a separate business entity, such as an LLC, an S-corporation, a C-corporation, or some other type of company as a way to avoid added taxation, limit liability, and protect your personal assets. And one of the greatest benefits you’ll gain along the way is the option to start building credit under your legal company name. You might not think it is terribly important to separate your personal credit score from your business credit rating. But what if you have to file bankruptcy personally, just for example? What if your business faces a liability lawsuit? You don’t want your business to get dragged down with you, or vice versa. The point is that building and maintaining business credit is important. Here are a few reasons why you need to establish good credit for your company.
For one thing, a separate credit identity can help to lend credibility to your business. If, at some point, you’re seeking lenders, investors, or partners, having a solid credit history established on behalf of your business can legitimize it to other business interests, improving your prospects. Even vendors along your supply chain may be more likely to do business with you when your credit is in good standing. And creditors will certainly look more favorably on the prospect of offering your business lines of credit when you’ve shown a proven ability to pay in a timely manner, building and maintaining your professional credit score along the way.
The most important thing that good business credit can do for you is increase your prospects for securing capital. And there will be times when you need it. If you’re lucky enough that your business is succeeding beyond your wildest expectations, you may be interested in expansion. But this takes money, and even if you’re earning a decent profit, you’re probably already putting a lot of it back into your business. Chances are you’re going to need some help with funding if you want to expand. Or you might not be doing quite as well as your forecasting suggested, due to any number of factors. Here a solid credit history can help you, as well, by convincing lenders to extend your line of credit to cover the gap until your earnings increase.
Of course, establishing, building, and maintaining credit on behalf of your business can also help you on a personal level. Suppose your business is the target of a lawsuit. When you’ve created a separate business entity, set up bank and credit accounts in that name, and used these accounts for all income and expenditures associated with the business, you can prove a pattern that eliminates your personal liability, helping to protect your personal assets in the process. And it’s so easy to maintain good credit once you’ve established it. All you have to do is pay your loans, your small business credit card, and any other creditors on time every month. The benefits of doing so cannot be overstated.