Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wed on Twitter from 8-9pm ET. This is excerpted from my recent interview with Iris Carter @idCarter. Her company, Corporate Fast Track, helps small business owners separate their personal credit from their business credit. Iris Carter is an accountant and IT professional with an in-depth understanding of debt negotiation, business credit, loan packaging and managing your banking relationship. She specializes in providing sound financial strategies to small business owners that will maximum funding opportunities for their businesses. http://www.corporatefasttrack.com
Smallbizlady: What does it mean to separate personal credit from business credit?
Iris Carter: Separating your personal credit from your business credit means that you formally establish business credit. Any credit cards, loans, and/or lines of credit that pertain to your personally are listed with the 3 major credit bureaus Experian, Trans Union and Equifax. Establishing business credit means any credit cards, loans, and/or lines of credit that you are using for your business would be listed in the business bureaus such as Dun & Bradstreet, Experian Business and Equifax Business. When you run a personal credit report, you will see no evidence of any of the creditors you use on a business basis.
Smallbizlady: Why is it important to separate my personal credit from my business credit?
Iris Carter: You need to separate your personal credit from your business credit for several reasons. The first has to do with comingling funds. For accounting purposes you need to keep business credit separate to be sure to take advantage of all tax benefits afforded you. The second most important reason is that your personal credit has a credit score. This score can help you acquire things you want in life or it can hinder you depending on how low or how high the score is. If for example, you have too much debt /credit on your personal credit report, this can hurt your scores. You don’t want add business debt on your personal credit, especially if the debt/credit belongs to your business. This will increase your debt ratio and lower your personal credit score. Other creditors can also lower your available balances, and even your insurance rates may increase. Your business is suppose to be a separate entity from you, standing on its own.
Smallbizlady: How to do you establish business credit?
Iris Carter: The only way to establish business credit is to start by separating your personal credit from your business by incorporating your business and getting a federal ID number for your business. Then you want to apply for credit in the name of your business.
Smallbizlady: How long can it take to build business credit?
Iris Carter: Depending on where you are in the process, it can take as little as 4 months and as long as 12 months from beginning to end to establish a business credit profile. The time frame depends on how quickly you can acquire all the necessary documents and filings needed to begin the process. It also depends on how quickly the business credit bureaus update your business information. When you hire a business credit specialist, the time is drastically cut because they specialize in creating business credit profiles every day. I have been building business credit profiles for over 11 years and there is nothing that I haven’t heard when it comes to building business credit profiles.
Smallbizlady: What is vendor and supplier credit?
Iris Carter: Vendor and supplier credit is credit used to purchase inventory or business supplies. Your business is given deferred payment terms for supplies, services and products for your business. These payment terms are normally extended out 30, 60 and in some cases 90 days. This type of credit is normally used to purchase items for resale.
Smallbizlady: What is business cash credit?
Iris Carter: Business cash credit is business credit cards and lines of credit which allows you to purchase what your business needs from any source.
Smallbizlady: Why is credit so critical to the success of a small business credit?
Iris Carter: It is important to have credit for your small business to allow for better cash flow. When you have credit or payment terms this allows your business to generate sales “first then pay for the purchased items after you have made sales. Without credit a small business would have to pay C.O.D. or cash on delivery. I had a client once who used to collect 50% on all orders. This was a good thing, but the problem was, he was on COD. He quickly realized that while he collected enough to pay for the products, he didn’t have enough to cover the shipping and he had to wait 2 weeks to collect the balance of the sale so he always put out more money than he collected. This hurt his cash flow.
Smallbizlady: There is so much on the Internet about business credit, how do I know what to believe?
Iris Carter: First, you want to use your common sense. If it sounds too good to be true, it probably is too good to be true. There are a lot of offers out there that say “You don’t have to use your personal credit to get business credit.” But you must ask yourself, first of all, which type of credit are they referring to? A lender will, at the minimum, review your personal credit, because they know you have to write the checks to pay your business bills. If you can’t write a check to pay your bills for yourself, more than likely you won’t pay your business bills either. You can also check credit companies out with the Better Business Bureau as well.
Smallbizlady: How can a small business owner find out if any of their current credit cards are business cards or personal cards?
Iris Carter: One way to find out if you have a “real” business credit card is to review your personal credit report. If you see that credit card on your personal credit, then you don’t have a business credit card. You only have a card with your business name printed on it.
Smallbizlady: What is the single most important thing a small business owner can do right now to protect their personal credit?
Iris Carter: You must incorporate your business, do not run your business as a sole proprietor. Apply for your federal tax ID number also know as an EIN number.
Smallbizlady: How can a small business owner separate personal credit from business credit without using a business credit service?
Iris Carter: There are about 10 steps you need to take to start the separation process:
1. Incorporate your business
2. Register your business with your state, city and county
3. Get your business license
4. Apply for your Sales Tax permit (this allows you to be exempt from purchasing taxes)
5. Get your business phone number that is listed with 411. (not a cell phone)
6. Apply for your federal tax ID number
7. Open your business bank account
8. Get a separate business address
9. Get a Dun & Bradstreet number
10. Register with your local chamber
Smallbizlady: What is a business credit specialist and how can they be helpful in their process?
Iris Carter: A business credit specialist can be helpful because they know the proper way to establish business credit. This is what they do day in and day out. Going to a business credit specialist is like going to a heart specialist because they specialize in matters of the heart. You wouldn’t try heart surgery yourself, you would see a specialist. When you need to build your business credit, you need a specialist. Someone who has been establishing business credit for years and has the experience and the relationships to help you maneuver through the maze of the present day economy and credit issues we face today. I study the money and credit trends and share this knowledge with my clients to help them make informed decisions.
If you found this interview helpful, join us on Wednesdays 8-9pm ET follow @SmallBizChat on Twitter.
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.
Melinda F. Emerson, known to many as SmallBizLady is one of America’s leading small business experts. As a seasoned entrepreneur, professional speaker, and small business coach, she develops audio, video and written content to fulfill her mission to end small business failure. As CEO of MFE Consulting LLC, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing. She has been featured on NBC Nightly News, in Forbes, the Wall Street Journal and Black Enterprise Magazine. Melinda is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media 2010)