Are you in need of some working capital to tide you over in these lean times?
Have you been trying to get a loan for your company but the bank tells you your business doesn’t have an adequate credit rating?
Have you worked hard to garner good personal credit scores, only to find that this has done little to help you get a business loan?
Well, if you answered “YES” to any of these questions, then read on.
Today more than ever, building a good business credit
history, separate from personal credit, is essential to getting a business loan. It used to be that just having good personal credit scores was all you needed, but now, because of the commercial credit crisis, good business credit is what lenders are looking for as well. Building good business credit is not as easy as just paying your company’s bills on time because many of your creditors probably don’t report to the business credit agencies.
Mistake # 1: Applying for Credit From the Wrong Sources
One of the biggest mistakes owners make in trying to establish business credit is applying for and getting credit from the wrong creditors. Did you know that there are over 500 business credit card providers in the US but only 60 will even consider approving your business credit card request without using your personal credit score and then requiring you to personally guarantee the revolving debt? This is not a business credit card. This is a personal credit card with your business name on it. There is a big difference.
If the business credit card application is requesting the social security number of the business owner, then you know that the credito is basing the request on that of the owner, not the business.
Mistake #2: Applying For Credit Where You Don’t Have a Chance
Another big mistake business owners make is applying for loans in a scatter gun approach. DO NOT APPLY FOR CREDIT FROM MULTIPLE LENDERS, VENDORS, OR CREDITORS WITHOUT FIRST KNOWING THEIR UNDERWRITING CRITERIA. The quickest way to destroy your ability to receive business funding and to ruin your personal credit rating is by submitting loan applications to multiple creditors, who, in many cases, have no intention of offering you a financing package.
Do your homework. It takes work and time to learn who will give your business the best chance at receiving the right kind of financing. Call the company before submitting an application. Ask them their underwriting criteria.
Know your own credit scores, both business and personal. When applying for a business loan at a bank, tell the banker your scores and make sure he does not check your credit until after he has screened your loan request. Ask the banker, “Given that my credit scores are XXX (whatever your scores are), what is the probability of my request being approved, based on the
other application criteria you see in my application?” If your banker can’t give you an affirmative answer, look elsewhere before your credit rating is damaged from inquiries.
Mistake #3: Not Having Business Credit Separate From Personal Credit
Most small businesses are initially financed by the personal savings or assets of the owners. However, in a growing business the personal assets or investments and personal credit often are not enough to sustain the business. It is necessary for the business to seek financing.
If done properly, the initial investment of personal assets can start the business off on a road to develop its own good credit rating. If you are working towards building a good business credit rating, consider this. Let’s say you have $20,000 to invest in a new business. You can deposit this money directly into the business or you could develop what’s called “comparable credit” for the business. If you deposit the $20,000 into your bank as a CD and borrow $20,000 against it as a Line of Credit, you can start establishing business credit. Pick a bank that will report your payment history to the credit agencies. Your bank may even allow you to set it up so that the loan payments are made out of the CD. Later, when you need additional financing, other lenders will see that you have a great business credit history.
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