Recently, I was talking with a client who owns a large farm. Due to cash-flow and timing issues, his company paid a few bills late one month. The next month, all bills were paid in full. Yet, several months later, he was denied credit.
The reason? A 30-day late-pay on his personal credit report. A bill he’d paid late involved a small personal account with a co-op, which reported the delinquency to the credit-reporting agencies. He had several accounts in his business name, but this one was in his name.
Two Types of Credit
This situation underscores why it’s essential farmers have access to both business and personal credit and to avoid commingling the two.
Today, unsecured business credit under $250,000 is readily available. While these sources of business credit still rely on the underlying credit worthiness of the owner, they offer some valuable advantages. They help avoid:
- The commingling muddle. You want to draw clear lines between your business and personal expenses. Having access to business credit makes separating expenses easier, which is important for tax purposes.
- Personal credit-score hits. If you encounter late-payment issues while using your personal credit for farm expenses, your personal credit score can be damaged. A late payment on your business credit insulates you somewhat because it reflects the business. As a guarantor of the credit, you are responsible for the debt, but using business credit for business expenses is a best practice.
- A misdirected debt load. One driver of your personal credit score is the amount of credit you have available versus the amount being used. Using too much of your available credit can significantly impact your credit score.
To maximize your business and personal credit, establish business credit through a business lender. In addition to large credit card issuers such as Chase and Capital One, other companies have targeted unsecured business loans and lines of credit, including Kabbage, Lending Club and StreetShares. Research options to find a best fit for your farm.
Apply for business credit using your business tax identification number rather than your Social Security number.
Following these steps will streamline and protect your business as well as your personal liability and credit score.
For more information on the pros and cons of non-traditional lending, visit AgWeb.com/alternative-lending
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