Significance

• Because sole proprietorships and partnerships are not incorporated, a bank will treat the business as though it is run by an individual or a group of individuals, depending on the specific business structure and number of owners. The company must use the owner's (or owners') credit history and debt-to-income ratios to determine eligibility for loans.
  
  

Benefit

• The benefit of borrowing money as a nonincorporated entity is that you will get a bank loan if your personal credit score is good. The bank will base the loan on your personal ability to repay the loan. If your business' cash flow and income are good, this flows through to your personal income, increasing the likelihood of you getting the money you need.
  
  

Disadvantage

• Because the bank uses your personal information, a poor credit score hurts your chances of getting a loan. Additionally, if you ever default on the loan, the bank can come after your personal assets. If you have a partner, you also must worry about the partner leaving the business or not making his share of the payments. His actions could also allow the bank to come after your personal assets, even if you are upholding your end of the financial agreement with the bank and your business partner.
  
  

Consideration

• You should consider incorporating. Corporations, including limited liability companies, have limited liability. This means that if you take out a bank loan and you cannot afford to pay or you go out of business, the bank cannot come after your personal assets if the loan is in the name of the business. The business can build credit, relieving you of personal indebtedness to a bank. This also allows the company to take on loans where you may not be able to. Since your personal debts impact your ability to get a loan, you may be turned down if you have an unfavorable debt-to-income ratio. Your business, however, may have little or no debt and sufficient income, allowing it to get a loan when you cannot.