It is a really good idea to separate your business dealings from your personal life. By Incorporating, your business becomes a separate entity that can establish credit, accumulate assets, and be sold off. This separation is good from the stand point of liability as well.
When is a good time to consider establishing your business as a Corporation? Typically when the business offers products that are being manufactured or re-sold. These things are usually acquired from wholesalers then the business either builds things, or provides added value in some way. To obtain these goods one would want to request “Terms” from their suppliers to put off paying for them until such time as the product is resold at a profit.
This “credit,” or debt, would show up on a personal credit report if the business is not a Corporation, and applied for as a Corporation. This becomes a problem when you attempt to acquire a personal item, say a vacation home, because the business’ debt service becomes part of the debt to income ratio calculation. It is best to separate business from personal finances.
Real Estate or other Investment Portfolio is another great application for forming a corporation. It could be a self-directed IRA using Buy-and-Hold strategies. There are limit to the number of “mortgages” an individual can have on the books (Personal Credit). Business lenders do not have a limit on the number of properties, the limit is usually a dollar amount. I have one banker willing to go to a $5 Million cap.
Find out more by reviewing the content at Austin Credit Group or call (512) 697-9784
- Your Credit Improvement Specialists
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