When you're first starting a business and income is limited, you need to pinch every penny and make sure you're spending every dollar as wisely as possible. For most small business owners, that starts in the decision about how you're going to structure your business, because the last thing you want to do is cripple your new company and destroy your own personal FICO® scores in the process.
Depending on where you live, registering a new business as a DBA ("Doing Business As") is pretty inexpensive, typically costing between $25-100. On the other hand, registering as an limited liability company, incorporation, or other corporate designation can cost several hundred dollars or more. But the pennies you pinch here could cost you a fortune later.
Many new business owners are acutely aware that separating yourself legally from your business is a necessity for liability reasons. They know their company's legal structure can help protect their personal property and finances from any liability brought from the business, such as lawsuit, tax debt, or corporate entanglements.
But few new business owners realize that choosing to use a DBA instead of a corporate registration will also mean their new company's credit will be forever linked to their personal credit. In other words, their personal credit will carry the weight of everything the business does, from general expenses to credit applications to legal disputes. But it also means they are choosing to carry the weight of their debt on their own personal credit and FICO® score.
Many will argue that having a D&B report will provide some insulation for things like opening new commercial trade line accounts or applying for corporate credit cards, but the D&B scores and ratings oftentimes don't tell the whole story.
If you have a corporate legal structure in place, lenders and creditors can look to other elements, such as activity associated to your business-based bank account, how responsibly you handle your business licenses and Secretary of State filings, or perhaps your business plan and financial accounting practices.
If your company is a DBA that has no corporate parent, then you — personally — ARE the parent! Creditors will look at your personal banking situation, your personal legal entanglements and debts, your financial responsibility, and, most importantly, your personal credit. You will be the one carrying the financial responsibility for your business.
And don't forget... D&B is very particular about what payment history can be added to the b