If you’re starting or already own a small business, you’re probably wondering whether it’s time to open a business credit account. Business credit can help you fund operations and growth. But does it affect your personal credit? The answer can be complex. Here’s what you need to know. 

The Basics of Credit

Credit gives your business the ability to borrow money to finance a variety of expenses. Your business credit report and score give borrowers a measurement of the company’s credit history. This is somewhat like your personal credit score. But there are a few differences. 

The Difference 

Each type of credit is different for several reasons. For example, business credit history is tied to your business finances, and personal credit history to your personal finances. Your company’s credit score is associated with your DUNS number or employer identification number (EIN), and your personal credit score is associated with your Social Security number. 

How Does it Affect Personal Credit?

Your business can be closely linked with your personal finances. Your history with business borrowing and repaying debts can impact your personal, particularly if you have trouble paying off your business’s debts. 

How much your business’s score will impact your personal score is based on several things. The most important one is your business’s structure. For example, a sole proprietorship is not its own legal entity, so it will be the most closely tied to your personal credit. Other business structures, such as limited liability companies and partnerships, offer individuals more distance from business financial matters. 

If a business owner signs a personal guarantee for a small business loan, this could impact their personal credit. These types of guarantees are often necessary for startups or businesses that don’t have an established business history. If you use credit cards for your business, these can affect your personal score in several ways:

  • Hard credit inquiry — When you apply for business credit, there will be a hard credit inquiry on your personal report. 
  • Payment history — If you miss payments, the company may report that activity to personal credit bureaus. 
  • Credit utilization — It’s possible that your business credit utilization, which is the balance you carry vs. your credit limit, will impact your personal credit. 

Get Customized Financing Solutions for Your Small Business

Small businesses with capital requirements that can be satisfied by banks or traditional lenders can turn to Asset-based Lending (ABL) ABL loans are straightforward — you use your business assets as security with clearly-defined loan terms. 

CAB Capital helps small businesses with all types of credit profiles get access to the funds they need. With over 150 products from a group of 67 different lenders, we can help you secure favorable terms that meet your business goals. Contact us today to learn more about your options.