At one time or another during your career as an owner operator, you may hear people mention the benefits of incorporating your business. Incorporating your business provides certain protection from personal liability in the unforeseen event that something may happen to put your business into litigation. Since most owner operators start out as sole proprietors, they are unprotected from the seizure of personal assets in the event of a catastrophic business loss. This protection coupled with certain tax benefits are two great reasons to incorporate if your business meets the criteria to do so, but one other very important benefit of incorporating often remains hidden. This hidden benefit that I speak of is creating business credit with your incorporated business entity.
Whether you are just starting out or have been a successful owner operator for several years, there will often come a point in time when you must make the decision to grow your business as it matures. A single truck operation can get by just fine on cash, personal credit, credit cards, and personal lines of credit. When it comes time to add another truck or two, you may find your personal credit a bit "tapped out". Not that you won't be able to get more personal credit, you just may have the inability to get enough credit. This could be because you're single truck operation has raised your debt-to-income ratio too high or maybe even that you have too much revolving debt. This is where the importance of building business credit comes into play.
In the world of personal credit there are three major bureaus that we all should already be familiar with, which are Experian, TransUnion, and Equifax. These three bureaus monitor and maintain your credit status for lenders to view when they are considering giving you any type of credit. What many people don't know is that there are two completely separate bureaus for building business credit, Corporate Experian and Dun and Bradstreet. These two bureaus monitor the trade and cash credit of your business on a scale from 0 to 100, which differs from the three personal bureaus that monitor you on a scoring system between 300-850.
Just as important as knowing that there is a difference between business credit and personal credit, you also want to make sure that your business transactions are being reported to the two business bureaus. For a couple of years I have had a corporate Visa credit card for my business that I thought was reporting to the business bureaus, but found out it wasn't after a little bit of counseling from the folks at Dun & Bradstreet. Being that 9 out of 10 banks use their monitoring when considering business lending, I took in a lot from their counseling that I received. There are many business credit monitoring services out there as well as programs to help you build business credit fast using self-reporting, including ones offered by the two business bureaus themselves. Be sure to research and do your homework thoroughly prior to choosing how you want to approach building business credit responsibly.
Given today's increasing freight volumes, many people in the business community project steady growth in the trucking industry throughout the coming years. It seems that now is as good a time as any for a successful owner operator that is business savvy and wants to take on the responsibility to expand into a small fleet. Of course the industry is a buzz with many other factors to consider before expanding, such as the driver shortage and the effects of the hours-of-service rules in relation to productivity, which should be thought out ahead of time as well. However, knowing you have the business credit to go forward should you make the decision to expand will allow you to take that next step without having to weigh down your personal credit even further!