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Building Business Credit
Most businesses want to be able to borrow money when they need
it, without the owners having to guarantee the loans personally.
This means less risk to the owners. But wanting to get credit for
your business and actually getting it can be two different
things.
One company recently approached us because over the past two
years they had created a successful business, with over twenty
employees. But they couldn't get a business loan because they
hadn't taken the time to build a business credit profile and
didn't know where to start.
You may have seen marketing hype about how a business credit
profile can overcome a bad personal credit file. In most cases,
however, it's important that small businesses have both good
business credit, as well as solid personal credit on the part of
the owners. This is especially true in the current environment
where investors and venture capitalists aren't handing money out
to just anyone who can breathe and has a business idea! Even
established businesses will find it necessary in some cases to
provide the business owner's personal guarantees on some loans or
credit cards.
Building business credit is completely different from building
personal credit, though your personal credit may be linked in
some ways. For example, credit reporting giant Experian sells a
business credit score that is based on both the risk of the
business and the personal credit of the owner of the company.
In addition, you don't have the same credit protection laws
with business credit that you do with personal credit. So you
want to make sure you start out on the right foot, or it can be
difficult to make corrections.
The key to properly establishing business credit is
twofold:
1. Set up the proper business structure and take basic steps
to ensure your business appears "real" and stable to the business
credit bureaus. That means getting the proper occupational
licenses, and a phone number that is listed with directory
assistance in the businesses' name, among other things. Your
business will generally need some form of corporate structure to
effectively build a business credit rating.
2. Borrow or buy products and services from companies that
will report your credit history to the major business credit
reporting agencies such as Dunn & Bradstreet and
Experian.
Unlike personal credit ratings, where you can have a small
income yet get a top FICO credit score, the best business credit
scores are reserved for large stable businesses, those with
several million dollars in sales a year and 25-50 or more
employees.
But don't let that stop you! By taking a few careful steps,
you can start small and still build a decent business credit
rating to get you the borrowing power your venture needs.
A few warnings:
1. Don't try to "buy" good credit! Some companies will offer
to "sell" trade references for a large sum of money. This is a
rip off and if the credit reporting agencies find out, they will
purge those references.
2. Don't spend large sums of money on a shelf corporation from
a company that "guarantees" you will be able to use it to get
loans. More often than not, the company won't have the kind of
credit rating you'll need to be successful.
3. Don't try to get business credit as a substitute for bad
personal credit. If you have damaged personal credit, work on
rebuilding it while you're building business credit.
Entrepreneurs are usually hard-working, creative and willing
to get the job done. Fortunately, those are the same qualities
that will help you through the process of building strong
business credit. Get started now! For more information about
building business credit, visit www.BusinessCreditSuccess.com
About The Author
Gerri Detweiler is considered one of the country's top credit
experts. She has been interviewed for thousands of radio,
television and print newstories including USA Today, The Wall
Street Journal, The New York Times, Dateline NBC and many others.
She has testified before Congress several times and worked on
reform of the national credit reporting laws.
MORE RESOURCES:
Credit - Google News
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