Small Business Financing Tips: Building Business Credit
Bad credit affects millions of people. If a person is trying to get a loan, having bad credit makes it especially difficult. Many lenders are much more hesitant to give money, and are incredibly hesitant to lend to “subprime” people or people with bad credit. Well, at least not without attaching tones of interest or some additional required security.
Entrepreneurs and small business owners with bad credit find this even more frustrating because one of the first things needed to start a business is money. Unfortunately, there aren’t many options for business owners who are trying to get financing despite their bad credit. They usually have to get some kind of bad credit loan, but there is usually some kind of catch or high interest rates.
Commercial Credit
One of the best options for entrepreneurs and business owners with bad credit is to establish business credit. This process can take a few years, but it’s worth it because you won’t be tied to your personal credit. If you establish a large amount of business credit, it means you’ll qualify for lower-interest loans. As a side note, it’s also important because if your business ends up suffering from bad credit, it won’t hurt your personal credit rating any further.
Start establishing business credit
It is important to establish a formal business type to clearly specify that your business is separate from your personal credit. You can establish a subchapter S corporation or LLC (limited liability company), for example.
1. Business checking account
Get a business checking account in your business name. Use this account to handle all business finances, instead of using your personal finances.
2. Business phone line
Get a business phone line in your business name and make all business calls from this phone line. Advice: It is important to use a phone company that reports your payment history to the credit bureaus. You can call and ask. If they don’t, it’s best to find a company that does.
3. Trade or supplier credit
Establish business credit with suppliers of office supplies and equipment. This is simply when vendors finance any purchases you make with them (supplies, inventory, and equipment) and you pay them back over time. Advice: You need to find vendors who will finance your purchases without requiring the use of any personal financial information and without requiring your credit to be linked to your social security number.
4. Business credit cards
Get business credit cards in your business name. It’s a good idea to get some and pay your monthly balances on time. Advice: Many business cards must be linked to a person’s personal credit, so it may take you some time to find a company that doesn’t do this. But remember that it is essential to have your business card separated from your personal finances and credit. It is also incredibly important to make sure that they report all of your payment history to the credit bureaus.