On behalf of SBA, Marco Carbajo the founder of the Business Credit Insiders Circle has written a guide for business owners to maximize their company’s true financing potential through building your small business credit. Through an understanding between the difference between personal and business credit Carbajo has identified four key differences to help businesses establish their own unique credit identity.
Credit Checks: When you apply for personal financing you provide your social security number on credit applications. With business credit, your company provides an Employer Identification Number (EIN) or D-U-N-S® number on credit applications in order for banks, vendors or suppliers to check your business credit reports.
Credit Identity: Individuals can only establish one credit identity that is tied to your social security number whereas a business has the ability to create a business credit identity for each business you own.
Credit Capacity: Personal credit worthiness is based on your ability to pay your financial obligations, your credit capacity is impacted by many variables (debt-to-income ratio, new credit, payment history, etc.). Small Business credit capacity is based on factors such as company revenues, years in business, industry classification, etc.
Credit Ratings: The most popular credit scoring system used for personal credit are FICO® scores. According to Fair Isaac, 90% of “top” U.S. lenders use FICO® scores. With business credit there is no single uniform risk assessment model used by banks, suppliers, vendors, and retailers.
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*Image: user 401(K) 2012 (Flickr)