How to Build Business Credit?

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Starting and scaling a firm requires big cash, yet many aspiring entrepreneurs have little funds. 

When venture capitalists and angel investors are unavailable, lenders may help. 

As a fledgling firm, how do you persuade a bank to lend to you? Founders need business credit to create reputation with lenders and seek finance. 

What is business credit?

Business credit is like personal credit, except it’s based on your company’s finances. By creating business credit, you may get loans and lines of credit for corporate needs like:

  • Renting or purchasing office space
  • Equipment purchase
  • Paying workers
  • Buying stock

Benefits of strong business credit?

In addition to improving your chances of receiving business loans and credit lines, strong business credit can:

  • Lower business lending rates
  • Purchase goods and services from suppliers without prepayment.
  • Cheaper business insurance

New business credit establishment

Apply for business lending and credit cards without a good score or long credit history to build company credit.

Choices include:

  1. Business loans secured by business or personal property
  2. Secured business credit cards (deposit required, some refundable after a certain number of on-time payments)
  3. Most online lenders have lower approval requirements.
  4. Financiers (typically need collateral)
  5. Many small company owners choose internet lenders due to high acceptance rates.

Besides banks, small banks and financing firms including mortgage, equipment, insurance, and vehicle loan companies are the next best possibilities.  

Use these methods to build company credit regardless of your approach. 

  1. Register your business

Establishing company credit starts with a distinct corporation. Your company structure is up to you.

2. Apply for EIN

Apply for an EIN using your company name after registering your firm. The IRS tracks your business’s finances for tax reasons. Businesses without workers, such as sole proprietorships, partnerships, and single-owner LLCs, do not need it.

It’s still useful since you may use your EIN instead of your Social Security number for business loans and credit cards. It lets you grow company credit without worrying about personal credit affecting acceptance. 

3. Open a business bank account

Banks will want to examine your company earnings and losses (P&L), not your personal income or spending. 

Consider creating a company checking account with your personal bank because you already have a connection. This may ease future company loans and lines of credit.

4. Request a company DUNS number

Now, provide the three business credit bureaus your company information (address, name, CEO/owner, legal structure). Apply for a DUNS number to achieve this. Local and international suppliers and creditors test firms’ creditworthiness using this. 

Within 30 days after applying, you should get the number. 

5. Business loans, credit cards, and lines of credit

Start with secured credit cards and loans, which don’t need a good credit score or long history. These goods generally target low-credit or no-credit enterprises.

See what your credit union or bank offers. If their possibilities aren’t enticing, try a lending firm or internet lender. 

Personal bank relationships are another option. Your bank may offer a business line of credit for your firm if you have excellent credit or loans.

Establishing company finance without personal guarantee

Expanding your business is exciting. If things go wrong, losing personal assets is scary, particularly if you’re borrowing to keep your company afloat.

Personal guarantee lenders encourage firms to pledge real estate, automobiles, and bank accounts. If you fail on your loan or line of credit, they may confiscate your personal assets, a regular request for new firms.  

Accept a high-interest loan or credit card to build credit without a guarantee. 

Since you pay more over time for the money you borrow, the lender or creditor won’t seek a personal guarantee. 

Secured corporate credit cards are another possibility. Some demand a deposit, which you borrow against with each credit card usage. Others may need a personal guarantee or utilize cash flow to assess creditworthiness. You may request a credit limit increase without deposits after six months. 

Your deposit may be returned, changing your secured credit card into an unsecured one. This will increase unsecured business credit and loans.

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