Many small business owners are a little vague about the distinction between business credit and personal credit, especially since they seem so much alike. There is a difference though, and by building your business credit up, it can be extremely advantageous to your small business, in some cases even more so than your personal credit would be.


Business Credit and Personal Credit

Information about business credit, or trade credit as it is also known, is collected by the major business credit bureaus, just as personal credit history is. One of the biggest differences between business credit and personal credit is that all information which is received by business credit bureaus is sent voluntarily, meaning that there are no requirements for providing business credit information. In effect, this means that you could make years of business transactions which are completely unknown to the business credit bureaus.


Establishing Business Credit

The first thing you need to do is to structure your business advantageously for securing good business credit, and that probably means forming a corporation or an LLC. If you were to go into business as a partnership or sole proprietorship, your personal credit history would be intermingled with your business credit, which of course destroys the possibility of keeping the two separate. Once you’ve established your business structure, you need to register with all of the major business credit bureaus.


Comply with Credit Market Requirements

In order to improve your chances for future credit approval, it’s very important that you stay in compliance with the requirements imposed by the credit market. This starts with simple things like having a business phone set up, and being properly licensed to conduct business in your local area. If you can follow all other business credit requirements, your chances of being approved for credit in the future will remain high.


Use Sound Business Principles

In the daily conduct of your business, make sure you don’t rack up any late payments to suppliers that will affect your credit score, and make sure your monthly payments to existing creditors you have, are on time. Make sure you have financial statements that are accurate and current, and that you have a sound business plan ready to support your case for credit application.