The life of an insurance agent can be hectic — especially if you've decided to go solo.
But as you work to get your new agency off the ground, it's worth slowing down enough to consider some credit contingencies.
Here are some steps to take that can help you grow your agency's business without putting your credit in danger.
1. Incorporate your business
If you're operating as a sole proprietor, your business debt is essentially your personal debt — and, by extension, your credit, too, will be one-and-the-same. Incorporating your insurance business as an LLC, S Corp. or C Corp. can help keep your agency's losses and liabilities off of your personal balance sheet, and thusly, off your personal credit report. Thanks to the advent of online legal companies, incorporating your business can be done with relative ease. Of course, you may want to meet with an attorney or accountant to find the best set-up for your agency.
2. Choose business loans wisely
Some business loans, including business credit cards, require a personal guarantee — meaning, if you sign on the dotted line, you'll still be considered personally liable for any debt you incur or fail to pay off. When choosing financing, be sure to read the fine print so that, at the very least, you understand when you're assuming such a responsibility. You'll also want to ask lenders about their credit reporting policies.
Furthermore, you'll want to carefully vet any lender you're thinking of doing business with. (You can start by reading online reviews and checking their standing with the Better Business Bureau.) And, be sure to comparison shop. You'll want to get the best rates you can conceivably qualify for.
3. Monitor your personal & business credit
Of course, in order to get an idea of what rates you may qualify for, you'll need to know where both your business and your personal credit scores stand. (Most business lenders do check your personal credit when you apply for financing, especially if a personal guarantee is required or you just went solo and don't have any credit to your business's name.)
You can see your business credit scores by contacting one of the business credit reporting bureaus. The most widely known is Dun & Bradstreet. And you can request a free copy of your personal credit report from each major consumer credit reporting agency — Equifax, Experian and TransUnion — every 12 months via AnnualCreditReport.com. You can go here to learn more about viewing your credit scores for free.
Not all business credit cards are created equal — you'll want to comparison shop. (Photo: iStock)
4. Get a good business credit card
Business credit cards can serve as a great source of liquidity and help you cover important business expenses month-to-month. However, not all business credit cards are created equal — and you'll want to comparison shop here, too, for some prime plastic. Many business credit cards even offer rewards and signup bonuses that can help you save some money on your spending in the long run.
But there's an important catch to note: Virtually all major business credit cards require a personal guarantee for small business and will report on your personal credit if the card goes into default, so you'll want to be extra careful about what you charge. Most issuers, however, don't report positive payment history to the consumer credit reporting agencies. Ask what their policy is before you apply.
5. Create a solid budget …
Of course, the most surefire way to keep your business debts from hurting your personal credit is not to accrue too much in the first place. We know, we know — easier said than done. Still, creating a solid budget (and sticking to it) can go a long way to controlling losses and liabilities.
Your budget is also a big part of your overall business plan. There are plenty of online tools and free apps out there that can help you draft a budget and track your spending. (Many of those apps provide additional services for a fee). You can also consult the Small Business Administration's website to get your business plan started.
6. … With a contingency plan
Finally, be sure to build an exit strategy into your business plan. While no one wants to consider failure as an option, knowing when to pull the cord can go a long way toward protecting your personal assets.
Fledgling businesses can run through capital all too quickly and, if you're not careful, big business debts can come back to haunt your personal credit reports. To avoid this dangerous scenario, maintain a watchful eye on all your debts and stick to keeping your agency's expenses separate from those in your personal life.
Jeanine Skowronski is the executive editor of Credit.com. Her work has been featured by The Wall Street Journal, American Banker, TheStreet, Newsweek, Business Insider, Yahoo Finance, MSN, Fox Business, Forbes, CNBC and various other online publications. Email her at jeanineskowronski@gmail.com and follow her on Twitter at @JeanineSko.
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