Creating business credit is not as simple as putting your business name on a credit application. Unless you use certain strategies when creating your business credit relationships, you will most likely be using your personal credit information.
Using your personal credit for your business is not a good business practice. Your personal credit will be examined when you start your business, but you should not continue to use your personal credit for business related things. It will limit the amount of money your business can borrow, which can stunt or kill your growing business. In addition, it can affect your personal credit score and over leverage you personally.
To start building your businesses credit profile you need to:
1. Have your business set up as a legal business entity. Not as a DBA (Doing Business As). A legal business entity is a corporation, a limited-liability corporation (LLC), S corporation, or other business incorporation. These vary by state.
2. Verify your business listing in the national 411 directory. This is how lending institutions check to see that your business is real. It needs to be listed as a business with the address and phone number matching the information you provided at your state or county level. To check how your business is listed, just call 411. Online databases are not the National 411 Directory.
3. Build vendor or trade business credit. Even if you do not “produce” anything, you need to get business credit vendors that you are already buying from. You should also buy or lease your company vehicle(s) in your company name. If you produce an item, get vendor credit with at least your top five to six suppliers.
4. Get a business credit card using your business credit information only. Pay almost all of it off every month, but keep a small balance on the card. This will act like a line of credit and will further build your business’s credit profile and score.
Now that you have the basics of your business credit set up, you can start getting business loans with your business credit profile only. Business credit works quite differently than personal credit. If done correctly business credit will not appear on your personal credit report, thus not over leveraging your credit.
Business lenders may even want past and current sales figures and projections as well as your debt-to-income ratio when considering whether to issue your business credit. But what they really want to know is how your sales are going to improve if they give you x-amount of money.
Whether you are going to hire staff or purchase equipment, list it. Explain how the loan is going to benefit your bottom line.
If you have your basics of business credit established and are familiar with your business figures, you are probably on your way to having a real business credit line. A business line of credit can supply you with fifty thousand dollars, one hundred thousand dollars, or more to take your business to the next level!
As the Nations Leading Expert in Business Funding, Pat Gage has created a system for raising unlimited money for any business. The system is called “10 Steps To Money®” and has assisted many of his students and himself in raising hundreds of thousands of dollars for their businesses. Pat is not only a sought after business funding expert but also a national speaker and frequent radio show guest. For more information on any topic discussed, visit Pat Gage’s site at http://www.10StepsToMoney.com
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