Credit Secrets

As an entrepreneur, your credit is one of the most important assets you have. Lenders look at your credit history and score to determine your eligibility, credit limit and interest rates. Angel investors also look at your credit report to determine whether your finances are in good shape, which means that even businesses that don’t apply for traditional loans must have a solid credit history.

Personal Loans

Paying Bills on Time

Paying your bills on time is the best way to build your creditworthiness. When a business runs short of cash, it’s common for the entrepeur to start paying bills late—sometimes this would include federal and state taxes.

Only after vendors have reviewed an entrepreneur’s bill payment history will vendors decide whether to work with that entrepreur’s company and offer a line of credit for goods and services. Entrep[reneurs should know that personal accounts often have different terms of payment from business credit lines. For example, personal credit card companies will wait for a full 30 days before reporting a late payment to the major credit agencies while business credit lines may report late payments much sooner. Regardless of personal or business, a single late payment could cause significant damage to an entrepreneur’s business credit history.

Late payments on tax obligations is likely sign that an entrepreneur may be at (or past) the point where they should reconsider continuining their efforts. Even paying regular bills late is almost always a poor approach

Vendor Credit

Establishing lines of credit allows an entrepreneur to spread out payments for services and goods. Vendor credit lines are essential for all businesses, but especially for startups. A bottstrpping entrepreneur may not necessarily have the capital or creditworthiness to purchase everything they need to get off the ground.

Business Accounts

Opening business credit cards and bank accounts is essential when it comes to keeping your personal finances separate from your business finances. If you pay for business expenses through your personal accounts, it may be difficult to claim those expenses at tax time. If you are ever audited by the IRS, having clearly separate accounts will make the process easier. Separate accounts also help protect your personal assets in the event that your business files for bankruptcy or goes through other financial difficulties.

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