In an earlier discussion, we talked about the wisdom, or folly as the case may be, of using your personal credit cards or personal lines of credit to bankroll your wholesale purchases. Doing so ultimately drags down your personal credit and limits the amount of credit available. But the biggest reason of course, is that sometimes it just doesn’t work. You just can’t be taken seriously as a business person if you’re not using business accounts.
It is possible to get a credit card in the name of your company. First of course, you must make yourself an official company, preferably through incorporation or by forming an LLC (limited liability corporation). Having done so, you are now a legitimate company and can apply for legitimate company credit. Whether you’ll be approved for it is another story entirely, but at least you can apply. It may take a few months for you to build up your business credit, and initially, you may even have to make a personal guarantee. There are a few differerent types of business credit you can obtain.
Your wholesaler may be able to provide you with a line of credit. Although sometimes the wholesaler provides this directly, more often, it is arranged through a third-party finance company. The interest rate may be high, but it is fairly easy to get approved for this. If you’re using it only for short-term debt and paying it off quickly, then the high interest rate shouldn’t bother you that much.
Once you have become a little more established, you can get a higher limit on your corporate credit card, and you may also be able to go to your local bank and apply for a line of credit, probably with a much lower interest rate than that offered by the finance company or the wholesaler.
Remember too that business credit is determined differently from personal credit. Your personal credit rating and FICO score is recorded automatically by the three major credit bureaus (Experian, TransUnion, Equifax). Whenever you pay a bill, your creditor reports your activities. You don’t have to do anything for that to occur. But with business credit, there are different credit bureaus (Dunn & Bradstreet, Experian Business, Equifax Business, and Business Credit USA). You need to actually register with these agencies under your business name in order to build a business credit profile.
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