Lending institutions don't always tell you all the requirements and where they go to qualify you and your business, before you apply for financing. A significant step in qualifying you and your business is to pull your personal AND business credit. Do you know what your credit reports look like?

As an expert in the small business credit industry, it's been my experience that fewer than 10 percent of entrepreneurs know about or truly understand how business credit is established and tracked; and how it affects their lives and businesses everyday.

Last month I spoke with a potential client (J.G.) who had questions about his credit situation. J.G. is a typical small business owner, who runs a small retail store in southern California and generates a decent profit.

In the good years he is able to take his family on a trip to Hawaii for a week. Something they all love to do. J.G. told me that he just applied for a mortgage on a new home and was denied. He started his business three years ago and never had previous credit problems. He couldn't understand why he was refused because he paid his personal bills on time.

I asked if he had opened any lines of credit for the business in the last three years. He said one line of credit with a bank for $60,000, but nothing else. I then asked if he had received credit or terms to pay suppliers for his retail store any time since starting the company. “Oh Yeah. Of course,” he said. Here is where the problem arose for J.G. His retail store needed several suppliers for all the products he sells. Unfortunately J.G. had applied for credit with each of these suppliers under his personal name during the last year. I asked if he paid all of those bills on time. “Not all the time, but the latest I ever paid someone was 60 days late.”

I cautioned J.G. that obviously not paying bills on time would damage his credit and that there were many other variables that determined his personal credit score. If you want just a simple system to keep your credit in good standing consider this one simple rule, make sure your debt load is no more then 25% of your gross income, even though many banks will lend at 33% to 38%.