When you are just starting a new business, having access to bank loans is important if you want to expand operations or if you have a sudden budgetary shortfall. You could use your personal credit cards to cover these expenses, but BusinessFinanceCoach.com and long-time entrepreneurs advise against doing do.
It is especially beneficial to keep your personal and your business credit report separate. If your business should fail (and most do within the first five years of operations) creditors would be able to attach your personal assets. You could be denied a homeowner's loan because you were late paying a $39.95 invoice for office supplies, for example. Forming a separate entity for your business is your first step in protecting the two fundamentals halves of your financial life.
The second step is establishing a strong credit record for this new entity. You need an established credit history in order to qualify for a bank loan. This is difficult to do in the beginning when your business’ history may take months.
Many banks want to see your record of payment with at least five vendors over the course of several months in order to ascertain your creditworthiness
This is when credit cards for new business is extremely useful. BusinessFinanceCoach.com recommends new owners apply for one of the 40 business credit cards that do not require the use of a personal Social Security number. Why is this beneficial to you? The credit card cannot be linked to your personal credit report or history. If you miss a payment on a business expense, it doesn't damage your personal credit. Additionally, banks love to see three business credit cards that report to the credit agencies. All three should be from among the 40 mentioned above.
While we’re on the subject of credit reporting, a bank will want to see how your business fares with the three business-credit reporting firms: Dun and Bradstreet, Experian Smart Business Reports, and Equifax Small Business Financial Exchange. It is essential to choose business vendors that report to these agencies. Of the more than a half million vendors extending credit, only about 6,000 of them report to the three credit-reporting agencies.
Furthermore, prompt payment credit cards for new business means your business will get access to bank financing sooner. After getting your first business loan, it will become much easier to obtain financing in the future.