You Can’t Hide Bad Credit in a Corp 3

Over the weekend, someone asked me a variation of the corporate shield question again. Specifically, in this case . . .

I read that if your personal credit is not that great, if you owned a corporation it is easier to get financing because your personal credit is not looked at.

That bugs me because it’s so different from what I’ve seen.

I’m not an attorney. This isn’t legal advice. That said, don’t plan on hiding your personal financial problems in a corporation. Here’s what I’ve seen on that. There’s a catch.

Corporate owner, meet personal guarantee

Do you want trade credit? Buy from the printer and pay 30 days later? Get some paper supplies? Rent an office? Corporation or not, expect to sign a personal guarantee. At least until your corporation gets old and big and has a lot of assets at play.

Do you want a bank loan? Small business loan? The bank will expect you to submit a personal financial statement and to sign a personal guarantee. If those don’t look good you won’t get a loan, unless you have a big corporation and a lot of assets, and maybe not even then.

Corporation or not, the personal guarantee is rampant. Business relations expect it; banks expect it.

I don’t think that’s some rule, and I don’t think it’s about the legalities. The lender in question has one very powerful word: “no.”

And that’s not legal advice. That’s just what I’ve seen in 30 years of business.

  • http://commercialloananalysis.com Ken Pirok

    You are right. I have worked in commercial lending, and I continue to provide training to bank lenders as well as business-owners.

    I cannot remember any small business loan ever that a bank made without the benefit of a personal guarantee. And, banks always check the personal credit of business-owners too.

    “Non-recourse” loans (i.e. those without guarantees) are reserved only for bigger and very well-established businesses.

  • http://www.wrightplacetv.com Dr Wright

    Most people who have good personal credit have pretty good business credit. Since it all starts with a personal guarantee, then we need to work on all of it

    Dr. Wright
    The Wright Place TV Show
    http://wrightplacetv.com/wright-place-cruise
    http://www.twitter.com/drwright1

  • http://www.proforozco.com Prof. Orozco

    Tim,

    I agree fully with your assessment. At the start-up phase there is little distinction between the business association and the individual.

    Prof. Orozco

About the Author Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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