If you own a small business and you’re trying to understand all this “Business Credit” jargon that is out there I think it boils down to one simple question.
Q: Are you in search of “working capital” for your business or do you want a small business loan to build a good credit profile for your business?
You might answer “both” – that’s okay but is one more important to you than the other. My experience has been that “most” people really want the working capital funds…or, lines of credit that are “cash lines” or can easily be converted to “cash lines”. This means that you can use the capital for whatever needs your business has. If you want or need this kind of working capital then you’re going to have to personally guarantee the loan/line of credit. With that being said, if it is properly originated with the proper lender(s) then you can still have the separation between your personal and business. Don’t make the mistake of thinking that if you personally guarantee a line or loan that it’s the same as a personal loan or a personal line…THIS IS SIMPLY NOT CORRECT. If you know how to properly set up one (or more) of these unsecured business lines of credit then you will be able to keep them off your personal credit report to maintain the separation between your personal credit and business credit. You’ll also get better terms most of the time.
Back to our question…if you simply want to build a good business credit profile for your company and you understand that this is probably a 1-2 year process then you will be obtaining the vendor lines of credit for things such as office supplies, gas, home furnishings, computers, etc. Remember, this is a good strategy and it will help you to build a solid business credit profile if it’s done the right way but you cannot use a Shell gas card to buy a property or cover payroll or anything other than for a tank of gas. These vendor lines of credit can definitely be obtained without a PG although some providers do not even avoid the PG when building business credit.
This 3 part blog is intended to give some brief answers to questions about the highly mis-understood topic of business credit. It is NOT an in-depth conversation or a thorough covering of all areas necessary for a full understanding of this topic. If you have questions please let us know.