What is business credit?

Business credit is when your business qualifies to receive funding in the company’s name, and this funding or loan doesn’t show up on your personal credit as a loan to you but rather to your business. This funding could come in the form of credit cards, a line of credit, a vehicle loan, or equipment.

Does this mean that the business assumes all the liability, and as the business owner, you have no personal liability or potential recourse from lenders? That is a loaded question that can, unfortunately, have multiple answers. The simple answer would be that you still have personal liability on a loan if your business defaults. The more complicated answer would be that it depends on how the loan documents are structured and how you have structured your business or company from a liability perspective. If you have established a business credit score and profile for multiple years and can provide tax returns and financials, it is possible for your business to qualify on its own without you signing for the loan.

How do I get more business credit?

What we’ve learned about establishing business credit for startups and other growing businesses these last 15 years is pretty interesting. Even though we all love getting loans in the business name and removing our personal liability, it’s very time-consuming and tedious to get your business to the spot where that is possible.

To get your business to the point where it has valid business credit, you will at times have had to use your personal credit to act as the guarantor for the business. So this means that in the process of building business credit, you’ve had personal liability along the way. This is because the banks and lenders are savvy and know they cannot risk loaning money to a business without first proving that it is creditworthy. Because you have had exposure personally to help the business get to the point where it is now creditworthy, our conclusion to this becomes easier to explain. Do not seek business credit solely to eliminate your personal liability. Instead, business credit should be viewed as a vehicle to get you access to more money and simultaneously keep your business and personal finances as separate as possible.

The side note or bonus to that is knowing that over time the business will be able to establish enough of a history to be creditworthy on its own. Once the business can qualify to get financing on the merits of its creditworthiness without you signing personally, you have achieved true business credit!