When you start a new business, even if you have great personal credit, it can be surprising to learn that it’s sometimes difficult to get business loans right off the bat. The reason for this is because personal credit and business credit are different. Though the process of building personal credit and business credit are largely the same, the two things themselves have many differences. If you are just starting to build your business credit, there are some practices you want to avoid and details you may want to know, even if you’ve had a personal line of credit and used it lawfully for decades. Here are the main differences between business and personal credit that you will want to know.
- Differences in reporting laws. If there is a mistake or even just something unduly negative on your personal credit report, you have the ability to challenge that entry and even have it removed, depending on what it is. The same does not go for business credit, which has very different reporting and challenging laws. The reporting agencies don’t even have to respond to your inquiry if they don’t want to. This can make getting business credit from traditional banks more difficult.
- Fewer rules about business interest rates. Lenders and credit issuers often have the ability to change interest rates whenever they see fit on small business lines of credit, something which is strictly forbidden on personal credit lines, unless the holder is more than sixty days late with payment. This can make it very difficult to know how much and when to use a business line of credit, since an unscrupulous lender can up your rates if you make a big purchase. When applying for business credit, make sure to do your research to avoid any potential problems with interest rates.
- Less notice about changes to business accounts. Because there are fewer regulations on business credit, lenders do not have to give businesses as much (or any) notice before making a change to their accounts. These changes might include changing a fee or changing the interest rates. Again, make sure you do your research about the company you choose to borrow from for your business loan.
- Perks for business accounts. Many banks will offer perks to business owners who use their business credit card accounts. This includes cash back on some types of purchases, lower interest rates, more points on purchases, and more.
Which should you get? While it is possible to get a regular credit card and use it for business purchases, if you can find a business line of credit with appropriate perks, this might be a better way to fund big purchases for your business. There’s nothing wrong with using personal credit for business purposes, but using business credit, when you find a reliable bank, is usually the best option.