Credit Policy for businesses and how to extend credit and manage credit risk

Most Entrepreneurs don’t realize that their personal credit is crucial to their ability to successfully run a business.  When you first start a business your personal credit is what is used to determine the types or if any credit will be extended to you.  Your personal credit will also affect the rates at which credit is extended to your business. 

Credit is something that is hard to come by right now and will be harder to come by in the coming months.  

Since you are just starting your business, it doesn’t have any credit built up, which is why your personal credit is used until you can build up credit for your business. 

Some businesses are not considered separate from the owner so the credit is shared, those are sole proprietorships, general partnerships and limited partnerships.  Even though you have a taxpayer ID number for your business, your personal credit and social security number are still used to determine your business creditworthiness. 

Your best strategy is to talk to a few banks, credit unions or invesotrs if you need a business loan and then decide where to apply based on many different factors including the interest rates offered. With lenders tightening their standards because of the state of the economy, make sure you have all your ducks in a row before applying for credit anywhere!