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How to Build and Establish Business Credit
Separate from Your Personal Credit in 10 Steps
by Lisa Phillips
updated: January 2009
Separate Personal from your Business Credit
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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.
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.
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.

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