Whilst you might assume that having a credit score is reserved for people, businesses have their own credit scores as well. Just like a personal score, a business’s credit history will determine whether lenders will agree to give your business a line of credit or not.
As a new entrepreneur or business owner, applying for credit can be the ticket to launching your company to greater success, but it can also be a minefield to navigate.
There is also no guarantee that your new business will be able to qualify for a line of credit. This can be due to a number of things but the biggest impact can come from your own personal track record and credit history.
This can also be a positive thing as if you have a good credit history personally, you may qualify to take out a greater line of credit for your business. Below are some examples of what might impact your ability to get a line of credit and what may impact your LLC’s credit score.
What Is A Business Credit Report?
A business credit report takes into account several things for your business history- much like a personal credit report. It is a snippet of your business’s credit use that lenders will use when deciding whether or not to offer a business a line of credit.
According to the Small Business Association (SBA), this is a list of typical information that can be found in a business credit report:
- General info such as number of employees, sales, and ownership
- Historical data of the business
- Registration details for your business
- Summary of any government activity
- Operational data for the business
- Industry classification and data
- Publicly accessible filings such as judgments against the business
- Late payment history and collections details
- Number of accounts reporting
What Can A Business Credit Report Affect?
Having a good credit report gives your business access to better business rates, a potentially higher line of credit, and less high rates of interest on your loans.
Customers and other businesses can also see your credit report and this can influence their perception of your company and whether or not they would like to do business with you in the future. This can be a great thing as it shows your legitimacy and strong credit background or conversely it can put clients off.
Why Is It Important To Keep Your Personal Credit And Business Credit Separate?
There are two main reasons to keep your personal and business credit separate. The main one being it is far easier for you as a business owner to keep track of your business expenses when they are monitored separately.
This way you will have a much clearer idea of what your incoming and outgoing expenses are are how well your business is doing. This also makes sorting out your taxes much easier as you can immediately see what is for the business and what is for personal use.
The second reason is for mitigating liability. If your business does not succeed, it is important to know that your personal finances are protected and even in the event of declaring bankruptcy, this will lessen the impact on your personal credit.
Can Sole Proprietors Get A Business Loan?
Yes. Under relatively new regulations, Sole Proprietor small businesses can apply for a business loan to cover payroll costs and expenses through existing SBA lenders.
Being a Sole Proprietor business means that you have not registered your business as its own legal entity with the state and is therefore linked intrinsically with yourself, the business owner. If you have a Sole Proprietor business, your business credit is your personal credit, and whatever your credit score, this will be the score used if you apply for a business loan.
There is no legal requirement for a sole proprietor business to have a separate bank account as you are not separate entities but it is still highly recommended so you can keep track of your finances more efficiently.
Will My Personal Credit Affect My Application For Business Credit?
Yes. An LLC’s credit score will be affected by your personal financial history. Credit scores for businesses go from zero to 100 and many small business lending companies will require a minimum business credit score of 75 before they consider offering credit.
An LLC is considered to be a ‘passthrough entity’ company meaning your business’s successes or failures show up on your personal tax return. Unlike a Sole Proprietary ownership company, an LLC does give you some more flexibility as an LLC can have its own Employer Identification Number or EIN.
This makes your business less reliant on your own credit history and gives your business a separate way to acquire some business loans, though you will still have to file your business taxes with an added form on your personal taxes, this form is called Schedule C.
In terms of applying for credit, if you separate your business and personal, it makes it easier for a bank or loaning company to understand your business projections and are more likely to give you a line of credit than if your finances are muddied together.
Banking companies and lenders will then likely ask for your business tax return or income statement as a way to further support new credit applications. This is another reason it is important to keep your business finances separate from your personal finances as it will be much easier for you to provide this information quickly to secure a line of credit.
Can I Get A Business Loan With Bad Credit?
If you are an LLC, yes you can. But your options may be severely limited. Many lenders still require a personal credit score of at least 545 but some require a higher score of 600 or 625 to qualify for a business loan as an LLC.
Yes your LLC does have a credit score and this can be affected by your personal credit history. But don’t let that put you off applying for credit for your company. There are options available for bad credit and it’s always worth seeing what is available to your business if you need to take things to the next level.