Entrepreneurs must seek to build, maintain and acquire credit both individually and as business owners. Why is it important to build business credit? Well, I’m glad you asked. It’s important to build business credit if you’re trying to build and grow a company so that you want have to rely solely on your personal credit.

As a former banker, it has been my experience that most small businesses that I have come into contact with do not know about or truly understand how business credit is established and tracked, and how it affects their lives and businesses.

Let’s compare personal credit and business credit.

Personal Credit:

When an individual with a social security number accepts his first job or apply for a credit card, a credit profile is started with the personal credit reporting agencies. This profile is added to with every credit inquiry, credit application submitted, change of address and job change. Resultantly, the credit report becomes a statement of an individual’s ability to pay back debt.

The major personal credit bureaus that compile and provide copies of the credit reports are:

  1. Trans Credit Union
  2. Experian
  3. Equifax

Business Credit:

When a business issues another business credit, it’s referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus to create ones business credit report using ones business name, address and federal/employer  tax identification number (EIN). This information is typically collected by those issuing credit to determine if they want to grant you credit and how much credit they’ll provide.

The major business credit bureaus that compile and provide copies of the credit reports are:

  1. Dun & Bradstreet
  2. Experian Business
  3. Equifax Business
  4. Business Credit USA

Unfortunately, because the information provided to the business credit bureaus is sent in voluntarily, the credit bureaus may never receive all or even any information about your business credit transactions. As such, it is very important that you, at least, check your reports (business and personal) annually to ensure that the appropriate information is being reported. Although, typically, as a new business enterprise (i.e., startup or existing), you might expect that only your business credit report is used to determine business financing, trade credit etc., but many lenders and/or creditors, particularly if you do not have a business track record, will look at your personal credit. Therefore, it is vital to the entrepreneurial process that you keep your personal credit in good standing.  In fact, as a business owner you would be wise to get a free credit report annually. Your annual free credit report can be obtained at www.freecreditreport.gov.

Next month we will explore the fine art ofEstablishing Business Credit.

Calvin Tucker

Calvin Tucker is the loan officer for WPFSI. His diverse experience ranges from small & large businesses, commercial & mortgage banking, business development, credit analysis, management, origination, servicing [domestic/ international], and more.