When officers and owners use their personal credit profiles to obtain credit for a business, they risk the chance of lowering their own personal credit scores in the process. There are two reasons you should strive to avoid using your personal guarantee on business credit. First, to avoid personal liability. If the business cannot make the payments, each individual signer is personally liable for the debt. Second, because credit obtained for a business can affect your personal credit score. This is because your personal credit score is based on several factors, including available credit, the amount of available credit used, late payments, and much more.

Many small business owners are unaware of their ability to build a business credit profile so they can stop using their personal credit to fund their business. You can separate your personal liability and protect your personal assets from that of the business just by incorporating. It is possible to build a business credit profile for a sole proprietorship or partnership, however you are still responsible for all the debts of the company. We recommend building your business credit as a corporation or limited liability company. The main advantage of forming a corporation or LLC is that you can separate your personal assets and liabilities from those of the business. If the business incurs a debt that it is unable to repay, your personal assets (house, car, belongings, etc.) are not at risk.


Here are some other advantages to forming a corporation or LLC:

Separates you from your business
• Limited liability of the owners and officers
• Lower tax liability
• 100% tax deductible insurance
• Reimburse 100% of medical expenses
• Corporate image
• Raise capital and build credit faster
• Lower your audit risk as a small corporation
• Stock ownership - easier to transfer assets
• Protect Your Personal Assets