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:
- 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.
- 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:
- 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.
- 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
- 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!
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. For more information about building business credit, visit http://www.BusinessCreditSuccess.com
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