For majority of Americans starting out their own businesses, the key to starting and maintaining business operations has been to “bootstrap” or to use their own personal finances for capital. In most cases, personal finances refer to savings, personal lines of credit, or credit cards.

Credit solution companies like MyCreditHeadquarters.Com < http://www.mycreditheadquarters.com/>, however, are warning against the bootstrapping approach to starting and growing a business. MCH warns that it could jeopardize the personal finances of the business owner.

MCH will never advise new business owners to dip into their personal savings or credit cards just to keep operations going. A company should have its own legal personality separate from the owners, and it should pay for its own obligations.

Business Credit: The Solution

MCH advises business owners to use business credit and adds that there’s a lot of wisdom in separating personal affairs from the business ones: when a businessman uses his own credit line to pay for business expenses, the debt shows up on his credit report. 

And even if he repays his debts on time each month, it could create a poor debt-to-income ratio, thus negatively affecting his personal credit scores. In most cases, since business debts are for amounts larger than personal debts, this can strain the person’s credit history, and his credit score.

Obtaining business credit is required for a business to establish its own credibility. Lenders will only lend up to so much to new business, and they normally do not grant loans to start-up enterprises that do not seem to be good risks. Some lenders will lend small amounts to businesses with low business credit scores, but it would be nearly impossible for them to grant loans to businesses with no business credit score at all.

How To Establish Business Credit

To establish business credit, Stevens said new businesses must first establish business credentials, and they can do two things to achieve this:

• Paying their vendors on time, and
• Permanently raise their credit ratings by establishing good business tradelines from established businesses.

For businessmen who are currently bootstrapping, or sustaining business operations with personal lines of credit, Stevens vouches for the wisdom in switching to business loans and business credit lines; using business credit invariably limits the liability of the owner should the business fail. Besides that, business credit also charges lower interest rates than personal loans.

Business financing, however, requires for the business to be a separate entity from the owner, at least from a legal standpoint, by turning it into a corporation or a Limited Liability Company.

About MyCreditHeadquarters.Com

My Credit Headquarters.com provides business credit solutions to start up and expanding companies in the United States. Visit the site http://MyCreditHeadquarters.com/ for more information on establishing business credit.