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A lot of business owners need financial support.  However, most of them want access to loans that do not require collateral.   If you intend to apply for a business loan, one basic requirement that you need to prepare for is good credit, especially if you want to acquire an unsecured business loan.

If you are an established business, it’s crucial to have a solid business credit to back up your loan application.  Due to the absence of collateral, most lenders will only extend an unsecured business loan if you have an impressive business credit.

For those who own a new business or start up business that have yet to build business credit history, acquiring loans can prove to be more difficult.  This is why business owners are advised to start building their business credit as soon as they begin operations.

Unfortunately, there are still businesses that have been in operations for more than two years, but still without business credit.  As a result, their options of getting financial help are limited compared to those with solid business credit.

Building business credit is different from building your personal credit.  The credit bureaus that keep track of consumer credit history are separate from the bureaus that monitor credit history of businesses.

How to Build Small Business Credit

So how do you build small business credit?  The first step in building business credit is to register with a major business credit tracker like Dun & Bradstreet and Experian for Business.  Be sure to do this important step as soon as you begin business operations.

Of course, proof that you are running a legitimate business is a prerequisite.  Legally incorporating your business is important in building solid business credit.  In addition, choosing the right business structure can protect your personal assets against business debts and losses.

After registering with a business credit tracker, the next important step in building small business credit is to open credit accounts.  You must apply for business loans or business lines of credit to show that you are capable of managing debt and repayment.  

If you get approved for a business loan or a business line of credit, make sure that you will be able to submit your payments on time.  Timeliness of payment is a major factor in reaching a high credit score.  Of course, you must choose creditors that will report your payments to the business credit bureaus.  Keep in mind that not all lending companies provide credit reporting service to the major credit bureaus.

One way to start building business credit is to apply for a small business credit card.  It is generally easier to apply for a business credit card than a loan, even without business credit.  Once approved, business credit cards can be used to pay for business expenses.  As you pay with your business credit card, you are also building business credit history at the same time.

Can good business credit cover your personal bad credit?  The answer is not.  Although business credit history is separate from your personal credit, creditors will make sure that both your personal credit and business credit are in good standing.

So, you say you’ve got got a little business and you are wanting for a credit instrument that would tailor itself to your business requirements? Well, your search ends here. Small business credit cards match right in, helping you separate business and personal expenses.

A study by the Tower Cluster reports that 2 out of 3 small businesses use a small business credit

card for purchasing and financing. Thus why are tiny business credit cards thus prevalent? Tiny business credit cards supply small businesses a crucial edge permitting tiny business owners to expand or limit the expansion of their business, as required, providing the pliability necessary to match their company’s growth needs.

 

Small Business Credit Card Edge

Help with Your Cash Flow: The most effective use of borrowed finances is to help with month to month cash flow. Small business credit cards facilitate your get the much needed credit to assist your business grow whereas providing a margin of safety for your money flow needs.

Maintaining Independent Accounts: Mixing your personal and business transaction accounts may lead to poor money management and potential tax problems. With a tiny business credit card, you may be in a position to take care of separate accounts on your personal card.

Facilitate Balancing Your Books: This one is thrown in for free. Together with your card company maintaining an ongoing transaction record, you may have a convenient record of all transaction things which will be reconciled at tax time. Merely have the mastercard company provide you an itemized list of all purchases made using their credit card and you’ll have some engineered-in transparency on all of your spending activities and monetary accounts.

 

Build Your Credit Limit: Tiny businesses looking to expand want capital. You card provides your business with an chance to build your credit limit with consistent use and repayment over time. Access to additional capital offers financial muscle to assist grow the business, providing larger income opportunities for the tiny business owner.

Pre-Set Employee Spending Limits: For businesses wanting to stay a good watch over their finances, these cards usually supply preset spending limits for employees, providing an wonderful check and balance system for all your company expenditures.

Take Advantage of Special Offers: The competitive market has forced credit card firms to have a say special discounts and rewards programs. By examining the travel and entertainment needs of your company, you may be able to grab offers that may facilitate scale back your expenses through the use of reward point systems.

Tips for Selecting Tiny Business Credit Cards

If your existing business partners offer a little business credit card, it is most likely a sensible idea to stay to them as you’re more seemingly to urge favorable rates and credit lines with a longtime credit line. Late payment and other such penalties will must be borne by the company and not the employee. Therefore, provide cards solely to employees you absolutely trust and only give credit limits that are per their expenditure requirements. Create certain the card you choose is widely accepted therefore that it helps meet everyone’s expense item needs.

Tiny business credit cards are quickly establishing themselves as an efficient method to extend capital and shopping for power for tiny businesses. While this incorporate responsibility in its management, a little business credit card might go an extended approach in changing the face of your business for the better.

Do a search about business loans and bad credit and you will see result after result touting some way or another where you can fool the banks and lenders into giving you a business loan.

Follow those results and for the most part you will only end up poorer (paying those companies or individuals a fee) and still not getting the business loan you want or need.

Banks and lenders use credit histories and credit scores as a time saving measure. You request a loan, they pull your credit.  If your credit is bad or below their threshold, they don’t waste anymore time on your deal request and can move on to other deals that have a better chance of getting funded.

I deal with entrepreneurs everyday that complain about how their bank or a private lender just won’t look at their deal because they have bad credit.  I constantly hear the same thing:

“Why won’t they just look at the merits of my business and not focus so much on my personal credit as it is my business that will be paying the loan back!”

My answer is always the same:

1) That is how the financial markets work, and

2) If you want to get approved based solely on the merits of your business then find the right business loan that focuses only on the merits of your business.

Sounds simple and it really is.

Yes, there are business loans (and other types of business financing) that either do not look at your credit at all or if they do, do not place much weight on it (great for those credit scores that are borderline).

Let’s look at three examples:

1) Accounts Receivable (Invoice) Factoring:  Your business writes an invoice for goods already shipped or delivered to your customer but you have to wait 10, 30, 60 days or more to get paid.  Then, factor those invoices and get your cash today so that your business can pay its employees, suppliers or to complete that next job.

As your business has already completed the job and shipped the goods and is merely just waiting to get paid, the lender has no reason to even consider your credit history.  Instead, they focus on the next cash event – which is your customer paying you.  If your customer shows a strong promise to pay as agreed, then your loan request should be approved (without pulling your personal credit history).

2) Purchase Order Financing:  Your business has already won over the customer and you have their job order in hand only to realize that your business does not have the cash on hand to purchase the materials and labor to complete that order.

Factor that job (purchase) order for up to 100% of the cash you need to complete it.  When the job is done and you collect payment from your customer, you pay back the advance and keep the profits to be plowed back into the next deal.

Again, since your business has already demonstrated that it can win business, the focus of this loan approval is not based on your personal credit or the cash position of your company but in the next cash event – when your customer receives the completed order and pays you.

3) Business cash Advances: If your business accepts credit card payments from its customers, then your company could qualify for a business cash advance; based on your company’s ability to continue to get customers to purchase your goods and services.

Based on past results (your business’s past results and not your personal credit history), your firm could receive a cash advance to be used as working capital to re-stock inventory, pay employees, generate new business or whatever your business so desires.

And, since repayment of this advance (loan) is based on future cash flow from your credit card paying customers, these lenders are not that concerned with your personal credit scores but more concerned about your business’s ability to keep getting those paying customers in the door (which is what you wanted – a business loan based on your business results and future potential and not your past credit mistakes).

Now, while Business Cash Advance lenders place the onus of their loan/advance decision on your future cash flow potential, they may still pull your personal credit.  The reason is that should your business shut down tomorrow, they want to be assured that you will still pay them back.

But, if your credit score is border line or just a bit below what a traditional lender requires, then a Business Cash Advance just might be the financing kick start your business needs.

These small business financing options were designed for businesses and business owners just like you – whether it is bad credit or a lack of cash flow or whatever reason a traditional lender states why they declined your loan request.

Thus, if you are one of the many that want a lender to focus their loan approval on your business and not on your credit, then seek the right business loan; a loan that has no reason to focus on your credit (as you and your business have already done the work) but focuses more on the merits and wherewithal of your company’s future potential.

So, the ball is in your court.  Forget your credit score and get out there and get the business – show these lenders that your business can and has the potential to be something special and then use that potential to get the financing you need.

If bad credit is holding you back from getting the business loan your company needs, maybe it is time to step up to the plate and seek a loan that is more concerned about the abilities of your business and not solely on if you have made a few credit mistakes in the past.

In the end, it really doesn’t matter where that capital comes from as it all can be spent the same way – helping you grow your business into the success you know it can be.

A credit card for personal usage is difficult to get, so much more for everybody who is applying for a new business enterprise credit card. Large numbers of commercial enterprise proprietors conceive that their application would be refused basically because their commercial enterprise misses financial history. What they don’t know is that a good and substantial income history is sufficient to make an opinion that your business is going to pay its credit ratings. When the opinion is made, it will be a bit easier to convince the credit card company to come out a new business organization credit card for yourself.

The final point that you have to plan for in order to fully convert the banking company or credit card company to supply a new business credit card for you is to demonstrate them that you and your business can pay for your credits on time. This will be done by proving them that you have a positive personal financial history. This will be relevant particularly if your business is comparatively new because the banking company or credit card institute will view the financial history of the individual who is going to pay for the business credits that is you, the owner.

It is very hard to create a financial history for your business but in the long term, you must make one. You could go to a lending institution or if you own a mortgage, you surely could pay for it through your business. This would certainly be a sign of your motivation to pay off your mortgage and your capability to pay for it. For the personal financial history, you could make one by getting cards from little retail stores or department stores and gasoline stations. These cards are easier to get particularly for first time appliers. You could make a good history by paying the installments on time for a couple of months then pay off the rest of the balance in full. Even though these cards have modest credit limits, they can still serve as proof of your possibility to pay and be a starting point of your financial history.

Debit cards may be utilized in building a financial history but it is only applicable if the depository financial institution where you have a debit card is also the very same banking company where you’re applying for a credit card. A debit card is like a credit card but you’re merely allowed to do purchases that are within the amount of money in your account and the amount is instantly derived from your bank account. If your money in the bank account is insufficient, the transaction would certainly be automatically invalidated.

A new enterprise credit card can be very difficult to get since your business doesn’t have any financial history it could be best if you begin doing an effective financial history even if you’re not joining for a credit card basically because who knows? You might necessitate it someday and by then, your business already has a competent financial history to sustain your firm income history.

Copyright (c) 2009 Marco Carbajo

I felt inspired to write this article after receiving so many questions about credit for small business and how you go about getting approved for cash credit lines despite the current credit crunch in the economy.

Let me be the first to tell you that businesses are still getting cash credit and business financing today but lenders have adopted new criteria and stricter guidelines that many business owners fail to recognize or adapt to.

It’s more important now than ever to be pro active and informed on what is required to obtain business financing for your business. I don’t recommend anyone to wait until you need financing to start because the business credit building process takes time and doesn’t happen overnight.

Ever heard the phrase “Dig your well before you get thirsty?”

I’ll even give you the shovel!

It’s important to understand that the biggest benefit to building business credit is not just having access to cash credit. One of the greater benefits is obtaining cash credit that does not report to your personal credit profiles. However, before any business credit building begins you’re business must meet certain corporate conformity guidelines in order to prevent it from getting red flagged by the business credit bureas.

When you start building business credit and progress in the process by establishing trade credit and eventually cash credit it’s important for you to understand that is not the end result that you should be shooting for. After building your business credit foundation the cash credit that you obtain should only be just the beginning!

You can be assured that you will obtain as much cash credit for your current needs when you follow the right steps but whether your business obtains $50,000 or $200,000, if you continue to follow the right step-by-step process you will be able to increase your cash credit lines to double or even triple the initial amount.

Here are my ‘Eight Steps to Building Ultimate Business Credit.’

1. Corporate Conformity

This is where you’re business credit foundation is set up and it’s critical not to take short cuts or side steps because you’re ability to obtain financing can be hampered. At this stage it’s vitally important to structure your business entity properly from both a tax and asset protection standpoint. In additon, both the business credit bureaus and lending institutions will verify certain information about your business that must meet specific lending guidelines. In order to achieve the best business classification ratings make sure you meet all the requirements before moving on to the next step in the business credit building process.

2. Business Plan

This is not a mandatory step, but it’s necessary for your overall business success as well as a door opener for specific lenders.

3. Business Credit Profile

Once you have completed corporate conformity you will be ready to set up your business credit profile with Dun & Bradstreet as well as steps to activate your business credit profile with Corporate Experian and Business Equifax.

4. Tier 1 Trade Accounts

This is the first step where you will be setting up trade accounts for your business that are known to grant small amounts of credit to businesses that have no credit history.

*Please note -

Even if you have been in business for several years doesn’t mean you have a business credit history. After setting up your business credit file there will be no payment history so you will need to start with low credit limits and gradually build it to larger amounts over time.

Another option is having your existing vendors that you have history with start reporting your payment history to the business credit bureaus. Dun & Bradstreet even offers a credit builder program for adding existing trade accounts but be sure the trade accounts you want to add fall under D&B’s criteria prior to purchasing their program.

5. Tier 2 Trade Accounts

At this point you set up business trade accounts for your business that are known to grant credit to businesses that have little business credit history. Because most Tier 1 trade accounts will now be reporting on your business credit file you can now submit appllications for Tier 2. When Tier 2 vendors pull your business credit report they will see that you have some good history so they will grant additional credit in amounts higher then approved for in Tier 1.

6. Tier 3 Trade Accounts

These companies will grant credit in higher amounts than what was granted from Tier 1 and Tier 2 accounts. Those members with good personal credit history may also be ready for bank financing at this stage. Each tier builds upon the previous tier. Many of my clients who want to apply for bank financing at this stage can but at this stage they will need to use their personal credit scores for approval and will need to be in the 680+ range. If personal credit scores are below the necessary range then I suggest enrolling in a credit restoration program.

7. Tier 4 Cash Credit Accounts

Tier 4 accounts consist of vendors who will grant your business cash credit cards, typically with a Visa or MasterCard logo. Benefits to you include no personal guarantee and affect on your personal credit profiles.

8. Advanced Business Financing

At this stage of the process your business credit file is built, you have history, business scores, a bank rating; access to funding and you can continue to obtain even greater amounts of capital by following my advanced business credit building strategies. There are many different advanced strategies to obtain additional capital with and without a personal guarantee at this stage.

Remember it’s not only about how much cash credit for you’re business you obtain initially, it’s about advancing to even greater amounts of credit capacity for your business. This is accomplished by following a proven simple step-by-step process.