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Things to know about business credit

Small business owners often feel that because their business is small they won't need credit. This is very untrue.The reality is that if you want to grow your small business you will at some time need business credit. While you may have relied on personal credit in order to get your business up and running you should as soon as possible work on getting business credit. This can help your small business in a number of different ways. In addition, business credit can be highly instrumental in helping to grow your small business. Here are some things to know about business credit-

- Don't overlook the importance of your business credit rating-The bottom line is that your business credit rating is just as important to your business as your personal credit rating is to your personal finances. Because of this it is important that you try to establish your business credit rating without involving any type of personal credit. Many new small business owners use their personal credit to get their business up and running. Then after their small business is established they continue using personal credit. This is never a good idea. Keep in mind that if your small business fails (which a lot do); you will still be liable to pay for the business charges that you have put on your personal credit cards. Conversely, once you have established business credit it acts as a protection for your personal assets.
- Realize that business credit can help to grow your small business-It is also important to understand that using business credit is a first step toward getting more substantial business financing. This is important since most small businesses will at some time need additional financing in order to expand. Any potential lender for this type of financing will be looking at your business credit report to see how you have handled the credit your business has had and gauge how good a risk you will be for a business loan. This means that it is crucial to pay your bills on time, keep your debt at a reasonable level, and establish a credit history as soon as possible. All of these things will contribute to whether or not you are able to get the business financing that at some time may be vital for your small business' survival.
- Do not involve your own personal assets-It cannot be stressed enough that you should never involve your personal assets in your business credit. Keep in mind that that once you have business credit this means that you will not have to personally guarantee it. If you do not have substantial business credit a lender may require that you personally guarantee a business loan which is a highly risky proposition. This means that no matter what happens with your small business you will be responsible for making sure that it gets paid even if your small business fails.
- Business credit can help to legitimize your small business-Having business credit also helps to legitimize your small business. It is important to consult with your accountant or tax attorney in order to get guidance on using your business credit and choosing the right legal structure for your small business. In addition, these financial professionals can also help to separate your business and personal finances which is important to both your business credit and your tax standing. Your business bank manager can also be a valuable resource for establishing the right kind of business credit. All of these actions will make your small business more credible to the IRS, your customers, and your suppliers.

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