Does the credit I build for a holding company carry over to its subsidiaries?
I want to start a holding company with many subsidiaries for the benefits of tax, liability, and credit...
When forming an LLC as a holding company; and then a subsidiary as an LLC, would any credit I build for the holding company then trickle down to the subsidiary?
Most lenders feel that every separate corporate entity should stand on its own financial feet and this is something that every entrepreneur should keep in mind. Normally, most of the consolidated corporate revenues, profits, assets, and liabilities are generated by the active subsidiaries. Credit from suppliers and financial institutions are based on financial ratios that indicate the companies' creditworthiness and use the information from the companies' income and balance sheet statements.
In your specific case, it appears that you want to launch several subsidiaries. It is difficult to obtain startup funding when there is no financial track record. In this scenario, your holding company could guarantee any credit offered to your newly incubated companies. This is risky if the subsidiary becomes too dependent on help from the mothership over a protracted time period. Any credit that is leveraged in this manner should be strictly in the form of temporary bridge financing with an understanding that the subsidiary is to be responsible for its own credit guarantees within a reasonable timeframe.