Establishing a limited liability company (LLC) does not have a direct impact on the owner's credit report. The debts of an LLC are only reported on an individual's credit report if they are the personal guarantor.
Features
An LLC requires applying for a tax identification number, as well as filing articles of organization with the state in which business is conducted. This creates a legal entity that is separate of the individual owners.
Benefits
By establishing a separate legal entity, the personal assets of the LLC owners are protected in the event of a lawsuit or liquidation.
Considerations
It is difficult for a start-up LLC to get loans and lines of credit. As a result, many LLCs need personal guarantors on their bank loans. In these cases, the loan is reported on the personal guarantor's credit report, just as it is on the business credit report.
Warning
If the LLC fails to make payments on loans and lines of credit, lenders will report derogatory trade lines on both the personal guarantor's credit report and the business credit report. This can make it difficult for both the business and guarantor to get future loans.
Expert Insight
As Bankrate.com notes, even an LLC that goes bankrupt has no impact on the credit of its members, as long as none of the debts are personally guaranteed.
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