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Selecting The Best Business Structure For Building Business Credit

Aug 17, 2007
A new business idea may come to a person at any point in their life. Usually what happens when someone puts a new business idea into action is they start the new business without giving much thought to designing the best business structure for building business credit. The main benefit of good business credit is that when the business needs extra money, the company can borrow it from the banks and other financial institutions with business credit. This spares the business owner from using their own personal line of credit.

How To Get Started
The most important part of building good business credit is paying attention to the corporate structure. Design the business structure so that no credit bureau will doubt the stability of your business. Whatever kind of business it is, get proper licenses from the proper authorities. A well-established corporate structure and credit profile also adds to the reliability and stability of a business.

Types of Business Structures
Below is a list of the three main types of business structures.

1. Sole Proprietorships
A business structure is known as sole proprietorship when a single individual owns a complete business.

2. Partnerships
When the number of owners is more than one, the business is a partnership.

3. Corporations
In the corporate type of business structure, a legal company is formed with ownership jointly enjoyed by owners and shareholders as well.

Benefits of Corporate Structure
Most financial experts agree that the corporate type of business structure is best for building business credit. That is why most of the businesses that aren't corporations are restructuring and converting into corporations. The biggest advantage of the corporate structure is that a person's personal credit rating and the credit rating of the business are completely different entities. So, when the owner or any other shareholders make financial mistakes that adversely affect their credit rating, no damage is done to the overall business credit.

For New Entrants
What kind of business structure should new entrants use so that they start with good business credit? There are certain businesses that do not require a pre-established structure, guarantees, or personal credit checks to get good business credit. Initially, you carry out business transactions with the vendors in these kinds of businesses. Later on, having a credit profile with any reputed credit rating agency becomes easier by using these credit references.

Take The Help Of Voluntary Organizations
In certain parts of the country, some private and government agencies help design the business structure for building business credit. They help to get the loans and government grants needed to start a new venture. Ask for the help of retired businessmen who are always ready to share their business experiences and help set up a new business with good business credit.

This is an age of computers. It is difficult to imagine corporate businesses running without computers. Buy the software and services available online to manage all the relevant information needed to build good business credit.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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