Most businesses want to be able to borrow money when they
need it, without the owners having to personal guarantee the
loans. This means less risk to the owners. Hoping to get a
business loan without a personal guarantee is one thing and
actually obtaining it is quit another.
Too many business owners come to us last minute trying to
obtain additional financing. We are constantly approached by
business owners asking how to obtain business financing, and
more importantly, how to obtain it without a personal
guarantee! We watch as successful businesses are turned down
for financing because they haven’t taken the time to set up
the business credit properly.
More vital is after the business credit is set up, who should
the business contact to get financing? Let me also say one
thing, there is a common misconception, good business credit
will overcome bad personal credit. In most cases, this is
simply not true. It is important to have good personal credit
and good business credit.
Let’s face it, banks are not donation centers! They will be
looking at both the business credit and the personal credit
of the owners of the business. Just because a business owner
has great business credit doesn’t mean that the bank will
completely ignore the negative personal credit.
Part of building a good, solid business is taking care of
both business credit and personal credit. Although, building
business credit is totally different than building personal
credit. With business credit you will need to make sure that
you have a proper business entity set up. You will need to
make sure it is a real business. By that I mean it should
have the proper licensing and permits to operate in your
local jurisdiction. You will also need to have a real
address. Not a P.O. Box! You will need to set up the phone
number properly so that the business credit bureaus can
verify that you really are in business.
You will need to do business with companies that report to
the business credit bureaus. There are over 500,000 companies
that extend credit and less then 10,000 actually report to
the business credit bureaus. If you are doing business with
someone who doesn’t report it does nothing for establishing
The best advice that I can give is start now! The point that
your business needs the money is not the time to start
building business credit. Start before you need it so when
you need it it is available. Remember, the most important
part of building and operating a successful business is
laying the foundation and business credit is part of that
foundation that needs to be set up properly in the beginning.
Let me give a couple words of warning!
1. Don’t try and buy
credit. There are a few companies that will try and sell
trade references for a large sum of money. This is a rip off
and as soon as the credit bureaus find out they will put your
company in “High Risk” status.
2. You don’t need to spend large sums of money on “Shelf
Corporations” or “Aged Corporations,” shelf corporations have
their place and can be a benefit, but you can also build
business credit and obtain financing to a brand new
3. Don’t try and substitute good business credit for bad
personal credit. Spend the necessary time and money to repair
your personal credit while building your business credit.
Do yourself a favor and start building business credit the
right way so when your business needs financing you know
where to go to obtain it!