Building Business Credit as a Sole Proprietor
Can you build business credit as a sole proprietor? As a sole proprietor, you might be wondering if you can build business credit. The answer is yes, it’s possible that you can. However, it is not ideal, and there are several reasons why.
Why Building Business Credit as a Sole Proprietor is Not Ideal
One of the main reasons why building business credit as a sole proprietor is not ideal is because of the way the business is structured. As a sole proprietor competing in the marketplace, there is no legal separation between your personal and business assets and liabilities, so this means that if your business fails and you have multiple business debts, your personal assets could be at risk.
Furthermore, as a sole proprietor, you have less liability protection than an LLC or S-corp. Additionally, if your business is sued for something, you potentially could be personally liable for any damages or losses. This could potentially result in bankruptcy, foreclosure, or even the loss of your personal assets.
The Benefits of Incorporating Your Business
To add a potential level of protection to your personal assets and limit your personal liability, it may be a good idea to incorporate your business. By incorporating or forming an LLC, you potentially could create a legal entity that is separate from yourself. This could mean that your personal assets are protected in the event of a lawsuit, depending on your state laws
In addition, incorporating your business offers other benefits, such as access to business loans, tax benefits, and more credibility with customers and vendors. It could potentially enable you to build business credit without risking your personal credit.
While it is possible to build business credit as a sole proprietor, it is not ideal. The lack of legal separation between personal and business assets and the limited liability protection make it a risky option. To protect your assets and limit your personal liability, you may want to speak with a business attorney and incorporate your business or form an LLC. *The previous article does not constitute as legal advice and should not be taken as such. Please see an attorney for legal advice on this topic. You can compare business credit services and more here.