Start & Expand Business

The American Dream, as it is now constructed, is to own and operate (at least until it makes sense to sell) your own business. Successful businesses in the United States are, for the most part, necessarily going to lean on their credit. While the underlying principles of establishing solid business credit and solid consumer credit are generally the same, the realities of establishing your business as a good credit risk are much more complex than establishing your credit identity as a consumer.

Where your personal credit can be established quickly with a credit card from your nearest gas station, business credit hinges on said business demonstrating an ability to turn a sustainable profit while, at the very least, not burning any vendors in the process. Depending on where a business is in its life cycle there will be different amounts and types of credit available. Similarly, the amount of capital available will also affect the amounts and types of credit that are available.

So how does a business get credit in the first place? If you need supplies, the first type of credit that your business will need is vendor credit. Most vendors will start a new business out with cash-on-delivery terms or 15 day terms. 15-day terms mean all materials must be paid in full within 15 days of delivery. As the business grows the terms will become more lenient, generally changing to 30-day terms, though in some cases a vendor will be willing to extend terms to 45 days or even 60 days. This is all dependent upon the industry and the relationship between the business and the vendor. It pays to know your creditors! For other needs, such as capital, credit availability depends on what the funds are needed for.

There are four types of loans available to business: short-term loans, inter-mediate loans, long-term loans, and lines of credit. The availability of these loans is going to be based on the credit-worthiness of the business. These loan types are similar to what one might expect when borrowing money for a home purchase or an auto loan. The larger the expenditure, the longer the term of the loan. Lines of credit work very much like a personal line of credit that a bank might extend to an individual. Once a business is established, with an Employer Identification Number and a DUN Number, it can apply for credit cards that will report only to business credit reporting agencies. Prior to that business credit cards are available but personal credit information will necessarily be affected by using the types of cards that are offered.

Start up capital is going to be in short supply for most first time business owner. Plenty of research is going to be necessary before a first-time owner can open the doors. The Better Business Bureau and the Small Business Administration both offer many resources for the entrepreneur just starting out in business ownership. But all the research in the world won’t get you past the need for money. If you are looking to start a business with a loan from the SBA, expect to put up at least 30% of the costs from your own privately-raised and/or personal funds.

There are many more differences between personal credit and business credit. If you are looking to start a business, you will need to put in as much research time as possible before your company can make a sale. Be aware that your personal credit history can and will affect your earliest ventures. Seek out a mentor, if you can, and get to work!