What is a Business Credit Asset and why is it important to your business?

A Business Credit Asset is one of the most important concepts that every business owner needs to understand.  It represents an asset that you can build your business that increases the likelihood that your business will survive and thrive and will have a greater value.

A Business Credit Asset starts with your business entity having its own strong business credit scores with the three top national business credit reporting agencies.

It is making sure that the credit lines which are used by your business entity are reported only on the business credit reports and not reflected as being tied to the business owners personally. But it is also more than just that.

The starting point for a Business Credit Asset is the business owners taking the time and effort to establish a business entity, either a corporation or an LLC.  While other forms of doing business such as partnerships or sole proprietors can build business credit scores, they cannot create a Business Credit Asset. Why is that? Business credit scores that are built under any form of business which is not a separate entity can only be used by that business owner personally. They cannot be transferred in any ownership change because all the debt is tied directly to the owners personally rather than to the separate entity.

After the business entity has been formed, the next step is making sure that business the entity is listed, the right way, with all the National Business Credit Reporting Agencies; Experian Business Information Services, Dun & Bradstreet, and the Equifax Small Business Financial Exchange.

Once that is done than having the business entity build strong business credit scores that are 100% separate from the business owners,and tied only to the business entity, creates an asset that can then be used to secure larger lines of credit, equipment leases, office leases, vehicle financing, credit cards, and business loans which are in the name of the business only and do not show up on personal credit reports.

Probably the best feature to a Business Credit Asset is that it is fully transferable with the business. This means when the business owners choose to transfer ownership or sell the business entity, the business’s debt and its Business Credit Asset can be transferred to the new owners clearly and transparently. This can greatly increase the attractiveness of the business for a sale and can mean that the business is worth more, to a larger pool of buyers.

Having a Business Credit Asset in place can also mean receiving more cash from the business sale because the owners may not need to carry back financing. Here’s why, the new owner will not have to spend time and resources building their own Business Credit Asset, that will have already been done for them. For many businesses, the value of a Business Credit Asset can be worth 100’s of thousands of

In these economic times it’s not just lenders who are studying every business closely. More people than ever are taking a hard look at a business before they award that new contract, lease the business an office or storage space, or extend any type of financing to the business.

In the United States, vendor credit makes up the majority of all business lending. Vendors will check the business entity’s credit before they agree to extend net 30-day payment terms. There are tens of thousands of companies that will extend a vendor line of credit to other businesses, but in the case where the business entity has not developed a Business Credit Asset, then those vendor credit lines will be based on the personal credit of the owners and it will be the owners who are required to personal secure the debt.

Lenders are now extending credit based on business credit scores. SBA lenders use it as a final approval factor, and if your business is approved, it will be your business credit scores that determine the amount of the loan that the business will receive.

Many business credit cards now require seeing at least 10 reporting tradelines on your business credit reports with at least one reporting a credit line of $10,000 or more before they will consider extending the business entity a credit card which is not tied directly to the personal credit of the business owners.

The term “trade-line” refers to any credit provider which extends credit to the business entity and then reports the credit terms and payment history to the business credit agency. Typical tradelines are leasing companies, vehicle financing, vendor lines of credit, gas fleet business credit cards, business credit cards from stores (Staples, Home Depot, etc.), and business financing from hi-tech companies (Dell, Cisco, Microsoft, HP, etc.)

Building and maintaining a Business Credit Asset is very much like building and maintaining your personal credit. Your business entity will need to get approved for at least 10 reporting tradelines, use those tradelines month in and month out and pay them each on time. Then you will need to monitor the business credit scores just like you monitor your personal credit scores.

A Business Credit Asset is an extremely valuable and useful tool for your business, but it is also one that you must pay careful attention to if you want it to be there where and when you need it most.

It is reported that in the United States today that only 30% or all businesses are operating as a separate entity and 85% of those have 3 or less reporting tradelines. So as it exists today there is only a small fraction of businesses who have built a Business Credit Asset. They do however turn out to be in the top 10% of those businesses which are successful.