Growing Your Business: Be Careful with Corporate Credit

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There are many entities and agencies out there in the marketplace telling entrepreneurs and would-be business owners that they should incorporate and start getting corporate credit.

First, let me set the record straight. Lenders of all kinds are well aware that the promoters of corporate credit are telling would-be business owners that they should get corporate credit. The underlying logic - they say - is that if the corporation defaults, the person behind the corporation will be insulated from credit problems because the burden will fall squarely on the shoulders of the corporation.

In fact, it is a rare financial institution in the U.S. that will issue credit directly to a corporation unless the corporation is very substantial. Why? It would be too easy for a company to close its doors, stiff its creditors, and re-open under a new name right next door. Therefore, lenders are careful to get signatures and guarantees personally from a corporation's main stockholders to prevent these types of abuses. That means that even though incorporation may make it difficult in some regards to "pierce the corporate veil," individual stockholders must guarantee that if anything goes wrong, they will be on the hook for the credit.

The other problem with corporate credit is that it doesn't show up on your personal credit report - unless something goes wrong. Now, this could be a good thing, since entrepreneurs tend to have more credit on their credit reports than employed people - and that significant debt load reduces their credit scores. But if you're trying to build good credit, putting credit into a company name does not help you accomplish this goal.

So, as you are working hard every day to build your company, or as you're building your career, be smart about how you acquire credit. Get counseling to help you determine what credit is right for you, whether business, personal or otherwise.

About Joel G. Block

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker and advisor. He once raised $10 million for his own startup company and later chose to sell it to the Los Angeles Times. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

Here's what one entrepreneur said about Joel:

"Joel's passion is evident in his approach to business growth. His revenue building strategies are the supreme launching pad for profits. Joel delivers again and again!"                 -David Wells, The Money Motivator

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