Follow Up to Reader Questions on Building Business Credit

Read the blog post that comes before this one. The reader replied with some additonal questions:

Thanks so much. I appreciate your quick response.

I do have a couple more questions again after reading through your FAQs again, so if you think all these issues below are covered in detail in your program, then please let me know.

You had said that for new businesses, the banks will want a personal guarantee, which I am understanding this to mean they look at your personal credit for all type of financial help (loans, line of credit or credit card), even if you have an LLC or corporation at the time.

My comment: Yes, most banks want to see personal credit, especially for younger and smaller businesses. I had a very interesting conversation yesterday about this very subject with Steve Edwards at PaynetOnline. His company is a specialized business credit reporting agency with an emphasis on construction and transportation, and a robust database of business credit information, especially when it comes to leasing. They are also working on trying to get more business credit card issuers to report to their database, and to rely on business credit data in extending credit card lines. Steve agreed that the business credit lending model has evolved from personal credit, and needs to "mature" so that better decisions can be made from business credit data.

The upshot is that a lot of business credit decisions are made relying on personal credit.

However, you had said in a later post that there are credit cards, I am assuming the same ones that want a personal guarantee, that will keep this debt off your personal credit report. So my first question is - Is this also the case if you were to get a line of credit or loan (they would keep the debt off your personal credit report)? And besides credit cards, does your program discuss which banks, that offer lines of credit or loans(SBA, ect), would not report this debt to your personal credit? Or is this just something you ask the bank when you apply for a loan?

You always have to ask. We do list that information whenever it is available in our program. We do list business-friendly banks, but we don't list how they report. You'll want to double check -- but most lenders don't report business lines of credit on your personal credit unless you default.

Additionally, if your business went broke and you defaulted on your loan, then would any of the above financial options you had (either credit cards, lines of credit, or loans) report this to your personal credit at this time, even though the debt was never on your personal credit report to begin with? Or would they report the default to your business credit report only, or maybe both (personal and business?)

Most will report a default on your personal credit if there was a personal guarantee. You are correct that a default could affect both your business and personal credit reports and scores. We do not specifically cover SBA loans in our program.

Sorry to be so long winded. I just was wondering if your program covers the above questions.

Thanks for the great questions!