Explore the advantages—and caveats—of establishing your firm’s credit profile.

Starting and owning a business is an exciting and fulfilling experience, but as all business owners know, it comes with some risk. Should your venture hit a rough spot, you’ll want to have a shield in place to protect your personal credit and assets.

What makes business credit a must?

Many new entrepreneurs choose the ease of the sole-proprietorship route. They may maintain discrete bank accounts and even credit cards and must file a 1099 along with their income tax return. In this scenario, the IRS considers all business profits and losses as a part of their personal income. The owner also assumes any of the firm’s liabilities–credit card and loan balances, outstanding vendor payments, etc.–as their own.

But ask any lawyer or accountant experienced in working with businesses and they’ll point out the benefits of establishing a corporation or a limited-liability company (LLC)–if it’s an option for your type of business. With these entities, you can :

  • Become eligible for optimal interest rates on loans
  • Benefit from greater borrowing power. The Small Business Administration (SBA) reports that a business can obtain 10 to 100 times greater financing than an individual can
  • Obtain lines of credit from your suppliers, so you can hold on to your capital
  • Fund your business without straining or risking your mortgage, auto loans, and other personal obligations

Getting your business on the radar.

Unlike maintaining a personal credit profile, establishing a business credit profile calls for these proactive steps:

  1. Set up an LLC, S- or C-corporation. These are the optimal business entities for separate credit profiles. This will include receiving a federal employer identification number, or EIN. (Don’t delay on this, since you can’t move to the next step below without your EIN.)
  2. Open up business, checking, and savings accounts. Voila. You’re now a business customer at your bank
  3. Order a business landline, cell phone, and internet services with your carrier’s business division
  4. Establish your credit profile with all of the major business reporting agencies. Start with getting a D-U-N-S number from Dun & Bradstreet, which is one piece of information that Equifax, Experian, and TransUnion can use to identify your firm. Many new and even established businesses skip this step, to their disadvantage
  5. Apply for a business credit card. Making everyday business purchases with your credit card–and paying the balance in full each month–is a great way to show your business’ creditworthiness. Many owners opt to get credit with the banks holding their checking, savings, and, if applicable, payroll accounts. This is a great relationship-building move for your firm

Consult with the experts.

It’s critical to understand what establishing business credit can and can’t do. Specifically, the shielding of personal assets with an LLC or corporation is a benefit you can enjoy once you take the steps above to establish your business’ independent credit.

However, when dealing with newer companies in particular, banks and credit card companies will typically require the owner to sign for a loan or a card. This means that should the business fail, you must still honor the debt.

Before setting up a business entity, consult with a lawyer and an accountant with proven business expertise. They can help you determine the best type of business entity to establish for your professional and personal circumstances, and ensure you’re headed down the right path toward your business’ financial independence.

Want to learn more?

Talk with an M&T Business Banking relationship manager to get more insights on starting a new venture. Visit a branch or call us at 1-800-724-6070.

To access additional financial education resources for entrepreneurs, visit our Financial Education Center.


This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.


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