You have heard of people talking about business credit. What is it and how do you use it?
Click below to schedule your business credit consultation. You will also get our free business credit guide.
When the time comes we all fill out an application using our social security number. The credit bureaus begin to build a credit report right then. Every time it confirms your current address or updates it so that the next time it’s pulled they will see your new address and when it’s reported. When ever you apply for credit and they do a hard pull on your credit the bureau reports who pulled your credit and when they do it is labeled as an inquiry on your credit report. It will report when you are more than 30 days late on a payment and usually if they sell your debt to a collection company it reports that and then it is also reported by the collection company.
Business credit is similar in so much as reporting late payments and delinquent accounts. However you have to register your business with the bureaus manually or you will never get business credit.
Yes they can check out our business credit and personal credit report section to get more detailed information but in a nutshell yes. Scoring is different with business credit than personal credit. It’s is complicated and if you know what you’re doing very quickly. Scoring is 0-100 where an index, intelliscore or paydex score of 80 is equivalent of a 700 FICO score.
In many circumstances yes, there are a lot of lenders/vendors that may still require a personal guarantee but until you have strong financials and length of business is more than 2 years then you are limited to a select number of lenders/vendors. Problem is they are hard to find.
Yes you can get anything from credit cards/store credit to large purchases like vehicle fleets or real-estate. We have a section devoted to this further down on this page.
An all too common problem with start ups are that they start our using their personal credit to start their business but continue using it to grow affecting their personal credit.
Why is that? The average consumer credit report gets just one inquiry per year and has 11 trade lines, commonly broken down as 7 credit cards and 4 installment loans (auto loans, mortgage and student loans.) Business owners aren’t your average consumer and this is because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. Business inquiries and personal inquiries aren’t separated on their personal credit report, the scores are negatively affected. This also causes them instead of building business credit which could help them attain critical business credit in the future; they are instead stuck only ruining their personal credit hurting your chance to get a personal loan to fix that leaking roof that happens at the worst possible time.
The answer to all these problems is to register your business with the bureaus that report business credit automatically. After you have obtained 3-5 trade lines with a few months of payment history then you can apply for cash loans or revolving lines of credit for working capital. You got to start somewhere. You should sign up to get a free business credit consultation.
I’m suggesting you form a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership because with a sole proprietorship or partnership, your personal credit information could be included on your business credit report–and vice-versa. In addition, as a sole proprietor or partner in a partnership, you’re personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.
Corporations and LLCs, on the other hand, afford business owners liability protection, and you can build a business credit profile that’s separate from your personal debts. You may be able to apply for credit under your business’s name and obtain credit without a personal credit check or guarantee if the credit grantor will do so–and it’s been my experience that often all you have to do is ask.
It’s extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn’t taken the steps to set the company up with the proper licenses and local, state and federal requirements.
These documents are often required by many credit grantors.
When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureau to help build your business credit report and a financial foundation for your company.
At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.
If you own a business, chances are there’ll come a time when you need more small business capital than you’ve got. Maybe customer payments are slow to come in, or perhaps you want to expand the business. Or maybe you just want to stock up before a seasonal rush. Whatever the reason, there are a few types of business lines of credit that can help.
Lines of credit are technically loans, but with a twist. Similar to how a credit card works, these financial tools offer business owners a set amount of funds to use, or not, at their discretion. Unlike a traditional loan, the amount in your pool of available capital is there for you to use, repay, and reuse repeatedly.
Interest accrues when you use the money unless you have an introductory rate. You can sometimes write checks from a line of credit account, you might need to visit the financial institution, or you might have the option of a funds transfer to your business account.
Although there are really only two business line of credit categories – secured and unsecured – there are a few different options within them.
Secured business lines of credit rely on collateral. That is, you would put up something of value, such as business assets or real estate, as a guarantee. This guarantee means that the lending institution knows that if you default on repayment, they can claim your collateral to repay what you owe.
A secured line of credit may have better overall terms because the risk is lower. The interest rate might also be lower, repayment terms more flexible, and you may also qualify for a higher line of credit.
Unsecured lines of credit don’t need collateral, so you won’t have to tie up any of your assets. You might also have a quicker approval time. Interest rates are often higher than secured lines of credit, and there might also be a maintenance fee that applies monthly or annually.
The SBA suggests that unsecured lines of credit might be better products than secured. They rely more on creditworthiness than years in operation, and the application process is often much less of a hassle.
Here is where your credit comes in. Since the business owners are ultimately personally responsible for any debt their business incurs, they need to be in good standing. Improving your credit score is one of the best things you can do to help your business get a line of credit with a decent interest rate. Start by devising a budget that allows you to pay off your debt every month. After you have paid off your credit cards, continue to use ten to thirty percent of the credit available, and pay it off in full every month. This is an excellent way to build and improve credit, and is a great habit to form.
Another unsecured option that the SBA recommends is the business credit card. A line of credit is already nearly identical to a credit card, but this choice has a few other perks. The main benefit is that with a credit card, nothing that you own, either for the business or personally, is tied up.
You also get quick access to cash, which is great when a line of credit might take days to transfer funds. Your payment terms are flexible too, compared to lines of credit that have set monthly payment amounts.
No matter which choice you make for your business, there are a few things that you can do to help improve your chances of getting the best deal. Keep your personal and business credit in good shape, don’t use too many credit cards (and don’t max out the ones you have), and work to show profitability.
Lines of credit are tools, like any other financial product. And while they can work for a lot of different situations, you have other options, too. Maybe you don’t have the collateral to qualify for a secured line of credit. If you haven’t been in business long, your business credit might not be strong enough to qualify. Start Up Solutions LLC exists to give you more options.
We have non-traditional funding solutions which might fit you and your business perfectly. Contact us today so we can help meet all of your working capital needs.
Our Business Credit Builder program helps you get business credit for your EIN that’s not linked to your SSN without any personal credit check or personal guarantee. Get approved even when you can’t qualify for a business loan with no cash flow or collateral requirements.
Did you know you can get revolving store and cash credit without any personal guarantee or credit check!
Our business credit experts help you get approved for credit lines and loans to start and grow your company- even when banks say “NO”. Get the money you need when you need it, and enjoy great interest rates and low monthly payments through hundreds of lenders and investors.
This means forming an LLC or Corporation not a Sole-Proprietor is the first step to building business credit.
You will eventually replace your social security number on applications with this. (EIN) Number
Not only is this a requirement but you will regret it later if you don't separate your transactions.
Business credit isn't established over night. Small trade lines that report is a start.
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