While obtaining business credit cards, small business loans and a business line of credit is the common objective for many small business owners there is a growing demand for learning how to qualify without having to use personal credit or a personal guarantee.
I’m happy to see that more and more business owners are embracing the idea of completely separating your personal credit from business credit. Many of my clients were never aware of the danger that co mingling the use of credit profiles for personal and business can jeopardize the protection of the corporate veil plus limit the amount of funding their business can obtain.
Here are my twenty steps to building corporate credit without using a personal guarantee. Please note that these are examples that I use from my own business credit practice.
- Incorporate your business and obtain a Federal Tax ID# – your Tax ID number will be the number that identifies your business and information. It’s just like how your social security number will identify who you are for personal credit.
- Complete corporate conformity (411 listing, verifications, business license, etc.) –vendors, lenders and banks will do their due diligence prior to extending credit to your company. Don’t expect to receive credit by skipping these key fundamental steps.
- Set up a complete profile with Dun & Bradstreet – Simply obtaining a DUNs number doesn’t cut it you will need to furnish additional information on your profile to give creditors a complete picture of your business. Remember there are companies like First Equity that offer no personal guarantee business credit cards but by invitation only. They purchase targeted lists from the business credit bureaus which you want your company to be on.
- Add existing positive trade references – use business credit builder programs which can help you build business credit fast so if you have the references take advantage of it.
- Apply for vendor lines of credit – getting business credit can be simple with companies that specialize in startup companies or businesses with no credit.
- Pay invoices ahead of the due date – you can increase your paydex score to 90 or higher by simply paying your invoices 10-20 days ahead of the due date. A big plus on your files!
- Build solid payment history – while account types and trade lines are a factor keep in mind that a payment track record is the final ingredient. Don’t think that one paid invoice will make your business capable of acquiring no personal guarantee credit lines or credit cards.
- Monitor your business credit file – a no brainer and a good habit to adopt for your personal files as well.
- Get listed with multiple business credit bureaus –target specific business credit bureaus that cater to your industry on top of the big three.
- Set up a small business bank account –before selecting a financial institution for your banking make a list of the financial products you may need. Consider a credit union or community bank because they are much more flexible in today’s economic environment.
- Establish a minimum ‘low 5’ bank rating – know what your banks are looking for.
- Obtain secured business credit cards – many do not require a personal guarantee and after six months you can request a credit line increase with no additional deposits.
- Open a business line of credit
- Establish a diversity of credit – build a strong business credit profile by obtaining different account types. This includes trade credit, revolving credit, loans and leases.
- Keep proper financials
- Establish a well written business plan – A business plan is your blueprint that outlines every necessary component for the success of your business. Enough said!
- Maintain or raise credit scores to 680 or higher – when applying for no personal guarantee credit a lender or creditor may still require a personal credit check.
- Build large trade lines with multiple tiers of credit –you can request for a credit limit increase usually after six months of good payment history. Before applying for larger tiers of credit be sure to know what the requirements for approval are.
- Stay informed! – join forums, social networks, read articles, subscribe to a business credit blog and consider joining memberships like the business credit insiders circle.
Following these steps will provide your business opportunities to establish business credit in the name of your business while protecting your personal credit and personal liability.
Marco is founder of the Business Credit Insiders Circle which helps small business owners establish business credit.
You may contact Marco directly at: firstname.lastname@example.org