How To Build Business Credit
Having their own business is something many millions of people
dream of doing. Many do, of course, but so many others never
quite get around to it. One of the factors that may discourage
people from getting that business off the ground, is a lack of
start up capital; and another may be the risk of losing their
With a bit of thought, planning and effort, though, it may be
possible for you to not only raise some start up capital, but
do so through business credit. In other words, borrow against
the business rather than personal assets.
You may be thinking that you have no business yet. That may be
so, but it does not mean you cannot obtain business credit to
get your plans started.
Building business credit is completely different from building
personal credit, and it is best to keep them separate if
possible. Some credit reporting agencies will sell a business
FICO score based on both the risk of the business and the
personal credit of the owner. In some instances, the owner’s
personal credit is linked to the business credit, separate
credit records are profitable. You should also bear in mind
that you do not have the same credit protection laws with
business credit as you do with personal credit.
There are some important steps to follow in building a good
business credit record. Here are a few for you to take into
1. Prepare Business Plan And Structure
You are now in the world of business credit, not consumer
credit. This means that you are trying to project yourself in a
business-like way. In preparing yourself to do this, you will
have the added bonus of preparing yourself for the transition
from being an employee to being a business man or woman. The
more business-like you become, the better your business will do
in the future.
But first things first. Your first job is to convince potential
lenders you are going to have a viable business. The quality of
your preparation is important; if you go seeking business
credit without doing your homework, you will be sent back to
the drawing board.
To begin with, set up a proper business structure, and if you
require any licenses, make sure those are in place. Also,
prepare a business plan, with the aid of an advisor if
necessary. You can use this to show that you have thought about
the business: the products, the markets, the competition,
pricing, and all the other elements of the business. Be
prepared to defend your projections for sales, and your
estimate of start up and running costs.
Again, this has the added bonus of being a good preparation for
you, regardless of seeking credit for your business. You will
become a better business person for preparing your business
plan. Hopefully, that will stand you in good stead as your
business grows successfully. Planning will become a part of
your monthly or annual routine.
Another preparatory move that will help you is, in the US at
least, getting a business credit profile. This can help you to
build up business credit without using your personal credit.
The benefits in having a business credit profile are many. Most
importantly, you will have more cash for the business,
convenience in purchasing, protection of your personal assets,
limiting of personal liability from the business, and the
ability to prepare your business for future lending needs.
2. Become A Good Credit Customer
You will, of course, need to buy equipment, services, stocks
and other materials for your new business. If you can find
vendors who will grant you credit, all the better; but is best
if they are companies who will report your credit history to
the major business credit reporting agencies. Dunn and
Bradstreet is probably the best know internationally.
Unlike with personal credit ratings, or FICO scores, with
business credit scores income or income potential play an
important roll. The top scores are reserved for the large
stable businesses, but with careful and diligent business and
crdit practice, you too can achieve a good credit rating.
3. Obtain A Credit Assessment
In order to enter the business credit market, it is best to do
a credit assessment. This will determine if you comply with the
lender and credit bureau’s requirements. Once you have done
that, look for businesses that issue credit without the need
for established business or personal credit checks or
guarantees. Once you have transacted business with vendors on
credit, you can utilize those references to build your credit
profile with the credit reporting agencies.
In many US states, there are non-profit organizations and/or
government organizations that will help you with obtaining
business credit. Often there are loans available for start-up
businesses or even government grants. Check your state
government, or national government if not in the US, web sites
for such organizations.
Many retired, or semi retired, businessmen volunteer to help
start-up businesses. If you can, take advantage of such help;
it will all build your knowledge as you set out on the road to
a successful business with a good credit standing. Experienced
business people will forewarn you of many of the pitfalls of
starting your own business, and you will be better prepared.
About The Author: Roy Thomsitt is the owner of
www.eliminate-credit-card-debt-now.com. He is a former
finance professional, now full time online author.