How do I separate my business and personal credit?
I have a sub S Corp with credit cards and loans. Recently, Capital One reported my corporate loans--which I guarantee--to my personal credit report. This has had an adverse affect on my credit score because it looks like my total debt and ratios are too high for my income.This is a very good question, and kudos to you for asking it as this is often overlooked.
So, I have good news and bad news. The good news is that it is possible to separate your business from your personal credit. The bad news is that it is by no means a cakewalk.
Analyzing the Situation:
First off, let's think about how you got yourself into this situation. The fact that you have personally guaranteed the debts of your S corporation means that you are personally liable if the S corporation should default.
Since the bank will still go after you should a default occur, the credit agencies factor this personal guarantee in your credit score. This is done so that other creditors would have an idea of your true potential liabilities should you need to obtain additional credit. If you were a lender, you would want to know this information too.
So what can you do?
Start with contacting your business banker at Capital One and explain the situation and that you are looking to release the personal guarantee on your business.
It is not entirely easy to get rid of a guarantee but you may be successful if you present a strong case to your business banker. You will have to convince him that your business is doing well now and is expected to do so for years to come.
Be prepared to highlight the company's revenue growth, profitability, cash flow position, how results exceed expected goals, excellent repayment history and improved collateral at this point in time. If the banker doesn't budge much, ask them upfront what they need to see to release the guarantee. It is likely, that they'll want you to make larger repayments on your existing loans. But, be sure to ask as every loan officer is slightly different in their approach.
Best of luck with this situation--and feel free to drop me an e-mail at firstname.lastname@example.org to let me know how it turns out.
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