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What is Corporate Credit?

Corporate credit is a line of credit extended to the business only, and that credit is built on the EIN of your corporation, with no personal guarantee needed from the owner. Think of your EIN as the SSN of your business, and like your SSN, a credit profile can be built on it. It does not happen automatically; it needs to be done purposefully.

Why should I build Corporate Credit?

We form a corporation for two reasons. First to get access to the tax advantages it brings. Second and just as important, it gives us access to the corporate shield, which protects our personal assets from the business. Unfortunately, as small business owners, we tear down that shield every time we sign for a CC under our name or take out financing with our SSN attached to it. There is nothing wrong with starting our companies with our own funding and a personal guarantee, it is the quicker route to get up and running, though there comes a time when we need to transition away from that. We owe it to ourselves to have that shield in place, protecting our personal assets that we worked so hard for. Building that profile on the business provides the shield, and along with that comes advantages in utilizing it. The more Corporate Credit we use the more they want to give, 10, 20, 50x what we as an individual can borrow at a time, and usually with much better interest rates too. Even if we do not want to utilize that power, we can keep it in our back pocket when lean times come around. Most small business owners also utilize a business credit card. Yes, it may have the business name on it and only used for business purposes, but if it states “Business” on it there is a very high probability it is based off of and reporting to YOUR personal FICO score. If you are using this card a lot, it is hurting your personal score, especially if you carry a balance each month or go over that 30% usage rule. Only if the credit card states “Corporate” on it are you truly protected because it is only reporting to your business’s credit profile. Which is actually a good thing, because like I stated earlier, the more you use in corporate credit the more they want to give you.

How do I build Corporate Credit?

There are things to consider when wanting to start building a profile on the EIN. Do I have a website? Is my work email in my business name and not a gmail, hotmail, outlook account? Is my business registered to a physical address and not a PO Box? These and a mix of about 120 other factors are what lenders look at first when considering if your business is fundable, so these things are what need to be corrected before you start down the road of building your profile. After that we need to make sure our EIN is registered with the 3 credit bureaus (D&B, Experian Business, and Equifax Business), because we need to build our profile around all 3 at the same time. It makes it easier in the long run to work on them together, because when we go to get financing for say new equipment, work vehicles, or to purchase property, the lender will check their mix of 120 factors of your business's credibility and then will pull a credit report for the EIN, and we do not know which bureau they will look at. After making sure we are registered for all 3 and that they will be tracking us, we navigate our way through the 4 tiers of Corporate. You know our personal FICO ranges from 350-850, 900, well with Corporate Credit it ranges from 0-100 on each of the 4 tiers and we want to be at tier 4 and 80+ on the score. That is the promised land, and when our business can get lines of credit extended to it alone, with no personal guarantee from us. Growing through the 4 tiers can be tricky though, because only about 7% of vendors/creditors out there report to the agencies, it costs money to do so. So, knowing what vendors to use and which bureau they report to (most that do report, only report to one) is vital, as we do not want to be spinning our wheels with vendors who do not report.

If you would like to continue this discussion and learn more, please reach out and I would love to share

Jumping in on this older post because this breakdown is exactly what I needed. I've been working on building corporate credit for my LLC and found the tiers helpful. Did you run into any issues with the credit bureaus when you first registered?

Corporate credit is about patience. Stick with the process of registering with bureaus and building tiers without shortcuts.