Statistics show that 94.7% of all small business owners feel their only financial resources are their local banks or personal credit cards… even though their local banks often require them to pledge personal homes and land .
Here are some tips that can save your business, regardless of your personal credit history.
First of all, getting approved for a small business loan is definitely easier than getting a personal loan…regardless of your personal credit score. In addition, obtaining the right types of corporate credit is absolutely critical if you want to protect your personal assets, minimize the risk of a personal lawsuit affecting your business, and your ability to weather overnight economic changes.
All business owners need to be much more proactive in developing relationships with the right types of lending institutions. Typically, you want to start your application process with out-of-state national lenders…not your local or regional banking institutions. National lenders will generally not require a personal guarantee or your social security number.
I am enclosing a basic roadmap that you will need to follow, whether you need a loan to start a small business, a business debt consolidation loan, a bad credit business loan, or a government business loan.
Ultimately, you need to find a competent professional who can help you navigate through the process of building a strong corporate credit rating.
Finding a competent business loan expert will give you an edge over your competition and also allow you to focus on running your day-to-day activities… instead of dealing with the hassles of establishing a strong business credit rating. An excellent business credit score can help your company’s image overnight.
You should prepare yourself with these very basic questions before applying for any business credit.
1. How is your business structured? Are you a sole proprietorship, C corporation, S corporation, limited liability corporation (LLC), partnership, or trust?
2. How long has your business been recognized by your state and local government?
3. Has your business ever received derogatory information against you from either of the two (2) most popular commercial credit reporting agencies, Dun & Bradstreet or Experian?
4. Are your business permits, licenses and registrations current?
5. Does your business have a physical address or are you trying to use a US PO Box instead?
6. Does directory assistance recognize your business phone number?
7. Are your incoming phone calls answered professionally on behalf of your company?
8. Have you established a business checking account?
9. Have you registered and applied for an Employer Identification Number (also known as an EIN) from the IRS?
If your answer to the first question was sole proprietorship, partnership or trust; I urge you to re-establish your business as a corporation or LLC. I’m not going to give you legal advice, but LLCs (Limited Liability Companies) are highly recommended by many CPAs and attorneys as a way to protect your personal assets and wealth… in the event that lawsuits are filed against your company.
As a sole proprietor, your personal assets are at direct risk of seizure or confiscation when facing most types of legal action. Also, if you are applying for business loans in the name of a corporation… most lenders will not require you to provide any personal guarantees!
A corporation may still face difficulties applying for business credit, if it has been in business for less than 2 years or has had prior credit problems reported against it. Here are some ways to fix these problems.
– Buying a “dormant corporation” or “old corporation” that has been in good standing with your state government (for more than 2 years) can dramatically improve your chances of small business loan approval.
– You can try to repair your company’s credit rating by writing dispute letters to Experian or Dun & Bradstreet, which is not always possible.
– Some corporate credit experts will help you find, select and purchase an established “shelf” or “old” corporation, some of which already have strong established credit ratings…saving you a lot of hassle!
I can’t stress this enough… you MUST have a physical address (not a PO Box) if you want to establish a strong business credit rating. The same is said for phone numbers and the way incoming phone calls are handled. Would you lend money to a business that doesn’t appear to have a documented physical address or phone number?
And don’t forget to always keep your small business permits, licenses and registrations up to date…and always keep copies of these documents in case a potential lender requests this information.
Business checking accounts are a must. Once again, this shows the stability of your potential lenders. Here are a couple of tips for you, in case a financial institution has closed a checking account. Pay the outstanding balance (if any) reported by the bank, or open a checking account with a bank or credit union that does not use the ChexSystems credit reporting system. Most credit unions don’t use ChexSystems, and you can always find a list of banking institutions in your area that don’t use ChexSystems… just by doing a search on Google, Yahoo, or MSN.
Small business credit scores are tracked using your business name, business address, and employer identification number (EIN). You can apply for and receive an EIN on the IRS website (irs.gov). You can also call the IRS, but be prepared for long waits.
Then you’ll want to get a DUNS number from Dun & Bradstreet, the largest commercial credit reporting agency. You can order it free of charge on the Dun & Bradstreet website and you will usually receive this number within thirty (30) days. Don’t apply for this number until you’ve thoroughly prepared yourself, because any information you give them…goes into your credit file…permanently.
Once you’ve obtained your DUNS number, you’re probably ready to start establishing some provider credit. Supplier credit is where many business owners begin to establish business credit scores. Just go to Staples.com, Officemax.com, or Officedepot.com to get started. Next, you’ll also need to fax them your company phone bill and credit application…on your company letterhead (which you can create using your favorite word processing software if you don’t have expensive stationery). They typically don’t require any personal collateral (if you’ve followed the scheme above), and you’ll typically receive an initial line of credit of $750.
This is critical and I repeat…critical! Always pay your bills before the grace periods begin…especially on unsecured credit cards or vendor lines of credit. Dun & Bradstreet will lower your credit score for each day a creditor reports your bill as unpaid while it is within your grace period. Whereas, personal credit scores are not lowered unless you are more than 30 days late on your due date.
Dun & Bradstreet reports what’s known as a Paydex score (your corporate credit score), and a score of 80 is pretty good…with 100 being the highest you can get. Your Paydex Score is issued once you have established a known vendor/credit relationship with at least five (5) creditors.
There are shortcuts that will help you get much more than $750 much faster. By using a business credit expert, most small business owners (even startups) can get approved for $25,000-$50,000 vendor lines of credit and open lines of credit of $50,000, $250,000, $500,000 or more. .. in just 45-60 days. .. by using your knowledge of the application process and “shelf” corporations.
Now, it’s your choice. Are you going to go against the grain and try to establish business credit on your own (which could be costly for the health, growth and survival of your business)? Or will you choose to use a corporate credit expert… that allows you to focus on your day-to-day business needs?
Most business owners make the mistake of trying to do this on their own…usually by trying to find grants, “angel” money from investors, or resorting to the “personal credit card sword.” Don’t be a victim like the rest. Learn more about how you can use the tools that informed and educated millionaire entrepreneurs have used for years.