Does Your Personal Credit Affect Getting a Business Credit Card?
Access to capital through credit cards and commercial loans can help a new business transition from great idea to smashing success. However, any new business struggles with the same thing a young adult experiences -- getting credit in the absence of a credit history. A company's ability to obtain a business credit card depends on several factors, including the form of the organization.
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Forms of Organization
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A business may be organized under several different provisions of the tax code, each of which confers certain benefits to the business owner. Proprietorships and partnerships are legally indistinct from the owner; the tax IDs are the same and the business and the owner are considered the same "person" under the law. A corporation completely protects the owner from personal liability related to the company, but corporations are more complicated to establish and maintain. Limited liability companies are easier to manage -- they afford a degree of personal protection for smaller companies.
Business Credit
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A corporation or limited liability company can only obtain credit under its own legal name and employer identification number. New businesses may find it difficult to obtain initial credit for a new company, because the company has no credit history, income statements or revenue stream. However, visiting a local bank or credit union with a business plan and a statement of company assets may convince a neighborhood lender to extend a business credit card.
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Personal Guarantees
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Some larger banks will issue credit cards to companies contingent on the named card holder providing a personal guarantee of the debt. The guarantor's credit then factors into the decision to extend credit and at what limits and rates. Furthermore, if the business should collapse, the personal guarantor becomes liable for the full outstanding value of the debt.
Build Credit First
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A business may have better luck getting business credit by developing a comprehensive business plan and getting a loan through the Small Business Administration. This loan helps establish a credit record that may make banks more amenable to opening a credit card account. Also, consider submitting financial data to Dun and Bradstreet to get a business credit profile. A DUNS number -- which serves as the corporate equivalent of a credit report -- gives potential lenders an insight into whether a new business may be a candidate for a commercial credit account.
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