How To Build Business Credit
Roy Thomsitt 112837 - 08/14/2005
Having their own business is something many millions of people dream of doing. Many do, of course, but so many others never quite get around to it. One of the factors that may discourage people from getting that business off the ground, is a lack of start up capital; and another may be the risk of losing their own money.
With a bit of thought, planning and effort, though, it may be possible for you to not only raise some start up capital, but do so through business credit. In other words, borrow against the business rather than personal assets.
You may be thinking that you have no business yet. That may be so, but it does not mean you cannot obtain business credit to get your plans started.
Building business credit is completely different from building personal credit, and it is best to keep them separate if possible. Some credit reporting agencies will sell a business FICO score based on both the risk of the business and the personal credit of the owner. In some instances, the owner’s personal credit is linked to the business credit, separate credit records are profitable. You should also bear in mind that you do not have the same credit protection laws with business credit as you do with personal credit.
There are some important steps to follow in building a good business credit record. Here are a few for you to take into account:
1. Prepare Business Plan And Structure
You are now in the world of business credit, not consumer credit. This means that you are trying to project yourself in a business-like way. In preparing yourself to do this, you will have the added bonus of preparing yourself for the transition from being an employee to being a business man or woman. The more business-like you become, the better your business will do in the future.
But first things first. Your first job is to convince potential lenders you are going to have a viable business. The quality of your preparation is important; if you go seeking business credit without doing your homework, you will be sent back to the drawing board.
To begin with, set up a proper business structure, and if you require any licenses, make sure those are in place. Also, prepare a business plan, with the aid of an advisor if necessary. You can use this to show that you have thought about the business: the products, the markets, the competition, pricing, and all the other elements of the business. Be prepared to defend your projections for sales, and your estimate of start up and running costs.
Again, this has the added bonus of being a good preparation for you, regardless of seeking credit for your business. You will become a better business person for preparing your business plan. Hopefully, that will stand you in good stead as your business grows successfully. Planning will become a part of your monthly or annual routine.
Another preparatory move that will help you is, in the US at least, getting a business credit profile. This can help you to build up business credit without using your personal credit. The benefits in having a business credit profile are many. Most importantly, you will have more cash for the business, convenience in purchasing, protection of your personal assets, limiting of personal liability from the business, and the ability to prepare your business for future lending needs.
2. Become A Good Credit Customer
You will, of course, need to buy equipment, services, stocks and other materials for your new business. If you can find vendors who will grant you credit, all the better; but is best if they are companies who will report your credit history to the major business credit reporting agencies. Dunn and Bradstreet is probably the best know internationally.
Unlike with personal credit ratings, or FICO scores, with business credit scores income or income potential play an important roll. The top scores are reserved for the large stable businesses, but with careful and diligent business and crdit practice, you too can achieve a good credit rating.
3. Obtain A Credit Assessment
In order to enter the business credit market, it is best to do a credit assessment. This will determine if you comply with the lender and credit bureau’s requirements. Once you have done that, look for businesses that issue credit without the need for established business or personal credit checks or guarantees. Once you have transacted business with vendors on credit, you can utilize those references to build your credit profile with the credit reporting agencies.
In many US states, there are non-profit organizations and/or government organizations that will help you with obtaining business credit. Often there are loans available for start-up businesses or even government grants. Check your state government, or national government if not in the US, web sites for such organizations.
Many retired, or semi retired, businessmen volunteer to help start-up businesses. If you can, take advantage of such help; it will all build your knowledge as you set out on the road to a successful business with a good credit standing. Experienced business people will forewarn you of many of the pitfalls of starting your own business, and you will be better prepared.
About The Author: Roy Thomsitt is the owner of