Monday, December 17, 2007

Building Business Credit

Most businesses want to be able to borrow money when they need it, without the owners having to personal guarantee the loans. This means less risk to the owners. Hoping to get a business loan without a personal guarantee is one thing and actually obtaining it is quit another.

Too many business owners come to us last minute trying to obtain additional financing. We are constantly approached by business owners asking how to obtain business financing, and more importantly, how to obtain it without a personal guarantee! We watch as successful businesses are turned down for financing because they haven’t taken the time to set up the business credit properly.
More vital is after the business credit is set up, who should the business contact to get financing?
Let me also say one thing, there is a common misconception, good business credit will overcome bad personal credit. In most cases, this is simply not true. It is important to have good personal credit and good business credit.

Let's face it, banks are not donation centers! They will be looking at both the business credit and the personal credit of the owners of the business. Just because a business owner has great business credit doesn’t mean that the bank will completely ignore the negative personal credit.

Part of building a good, solid business is taking care of both business credit and personal credit. Although, building business credit is totally different than building personal credit. With business credit you will need to make sure that you have a proper business entity set up. You will need to make sure it is a real business. By that I mean it should have the proper licensing and permits to operate in your local jurisdiction. You will also need to have a real address. Not a P.O. Box! You will need to set up the phone number properly so that the business credit bureaus can verify that you really are in business.

You will need to do business with companies that report to the business credit bureaus. There are over 500,000 companies that extend credit and less then 10,000 actually report to the business credit bureaus. If you are doing business with someone who doesn’t report it does nothing for establishing trade references.

The best advice that I can give is start now! The point that your business needs the money is not the time to start building business credit. Start before you need it so when you need it it is available. Remember, the most important part of building and operating a successful business is laying the foundation and business credit is part of that foundation that needs to be set up properly in the beginning.

Let me give a couple words of warning!
1. Don’t try and buy credit. There are a few companies that will try and sell trade references for a large sum of money. This is a rip off and as soon as the credit bureaus find out they will put your company in "High Risk" status.

2. You don’t need to spend large sums of money on "Shelf Corporations" or "Aged Corporations," shelf corporations have their place and can be a benefit, but you can also build business credit and obtain financing to a brand new corporation.

3. Don’t try and substitute good business credit for bad personal credit. Spend the necessary time and money to repair your personal credit while building your business credit.
Do yourself a favor and start building business credit the right way so when your business needs financing you know where to go to obtain it!

Do yourself a favor and start building business credit the right way so when your business needs financing you know where to go to obtain it!

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