@Anonymous wrote:
I am starting a new retail business in Chicago in the next 2 months as soon as i lock down a location.
My question is how much of your personal credit do they take into account when applying for business credit. I ask it like this because it is a new business and i have no established business credit. I know the steps to establish business credit.
Also i see people on here talking about using person cards or personally guarantee on credit for their business. This is a bad idea... The reason we form a LLC or inc or form a S corp or whatever type of incorporation we do... is to protect our personal finances . When we pg an acct or even use our personal cc's one time we loose that protection of incorporation.
This means that not only your business can be sued but you can also be held personally responsible as well. At this point you may as well have your business as a sole proprietorship.
It is possible to build your business credit without PG. This involves having a business plan, enough capital to use to put towards an savings account or cd to secure a line of credit. Other times you can apply for a business secured credit card (hard to find on websites but would have to ask at the branch at banks itself). My first business I've started was an llc and was able to obtain over $70k in credit from banks after a year in a half of building credit for the business, no missed payments, payed early or on time. My second business was a corporation and was able to transfer one of my LOC to the new business and basically gave me a jump start in building the business credit. The point is, it is possible to build credit without a PG. When you PG, it doesnt always mean your business is no difference than a sole prop or partnership. All youre doing is co-signing. Even if you dont PG, if the company default on a LOC and the creditor sues, the judge could pierce the corporate veil if the judge believes there was never an intent on making payments (eg taking out a loan and never made one payment on it), fraud, etc.
If you are concern with being personally liable, you can pg a loc and use it for the business for about a year and a half (during the time its probably would be wise to open more accounts like net 30/60/90, credit cards, leases, etc) then after the time period and the account balance is paid, try opening another account without PG. Before doing so, talk to branches and do research on which companies requires a PG and which dont. Most commerial accounts dont require a PG but does have a other requirements.
