Myths & Facts
“I have a tax id (EIN) number I qualify for business credit…”
An EIN number by itself does not permit you to access to all levels of attaining business credit. You will still need to establish your business credit profile which cannot be done with your EIN alone.
“My personal credit is bad so I can’t establish business credit…”
Many people think that personal credit weighs into the factors of establishing business credit, however you couldn’t be more WRONG. Your business credit profile is completely independent of your personal credit if your business is formatted correctly.
“I can build business credit separate from my personal credit as a sole proprietor…”
Unformnately, one of the drawbacks of a sole proprietor business enttity is that your personal credit IS your business credit. While some business owners opt for a sole proprietory shop, this business formation is the least favorable since your social security number and your tax ID number (EIN) are linked together.
“I have a credit card in my business name so I already have business credit…”
When your business name appears on a credit card, you cannot assume that the credit account is specifically tied to your business. If you applied for the credit account using your social security number, the account will be guaranteed based on your personal responsibility. It is important to know and understand how to apply for businesss credit correctly so that you are keeping your business accounts separate from your personal credit accounts.
“Purchasing a shelf corporation will instantly give get you thousands in business credit…”
Shelf corporations do not build credit. They are designed to primarily establish longevity. You are not guaranteed higher limits by purchasing a shelf company, and would have the same benefits as if you incorporated a new business.
“Since I have great business credit I can qualified for a business loan…”
Having established business credit has its perks, however, it does not preclude you from having to furnish your personal credit history to a vendor. When applying for loans, you may still need to provide the financials for officers of the company in order to guarantee the loan.
“Now that I have a Business Credit Profile, I can get any kind of credit I want…”
Vendors have specific criteria that they use to approve or decline an applicant for business credit accounts. By establishing your business credit you have announced to the world that you have a business but it does not mean that you have a rite of passage to acquire any type of credit account. Be mindful that you are subject to credit scoring just as you would be with your personal credit, and some creditors require a minimum score in order to approve your application.
“With my business credit, I can buy personal items and pay off debts…”
This is one of the biggest myths about business credit, and often the subject of newspaper headlines. A popular case, citing instances of the abuse of business credit is ENRON. While you are free to purchase whatever items you choose with your business credit, we at BFSE advise our clients to beware of the rules surrounding the purchase of items not used, consumed or in the direct funding of your business. There are exemptions that may be applicable to your particular business but may not apply for every business type. Contact us today and be sure to ask about “Piercing the Corporate Veil”.
