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How to Build and Establish Business
Credit in 10 Steps
by Lisa Phillips
updated: January 2009
Separate Personal Credit from your Business Credit
You can build and establish business credit separate from your personal credit history and
there are several good reasons why you should do so. Business credit established separately
from your personal credit protects your personal assets.
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When small business owners seek financing, whether it be a small business loan, a line of credit
or credit card, banks and lenders often require a personal guarantee. A personal guarantee
means you will be guaranteeing repayment of a business debt, without exception, with your
personal assets if the business defaults on the debt.
Those personal assets that you are pledging could be cash, investment securities, notes, real
estate investments, your personal residence, copyrights and even shares in a closely held
corporation.
A personal guarantee will tie your personal assets with your business debts. As you can see, a
personal guarantee could prove dangerous if business debts go into default. Another major
issue with personal guarantees is that both your personal and business credit ratings could be
ruined if default occurs with either.
It would be hard to recover from both your personal and business credit being ruined. Think of
personal guarantees as a cosigner. Some of you may know the unfortunate side of cosigning for
a loan. It makes you financially responsible in the event the borrower defaults on the loan. A
personal guarantee essentially makes you a cosigner. Creditors will not hesitate to pursue you
and your personal assets for payment.
The key to establishing business credit is finding vendors, banks and credit card issuers who do
not require your personal assets to guarantee repayment of business debts if default occurs.
This can only occur as you begin to establish good payment records with your business debts.