It’s true, not having enough money can stop businesses from growing, and not knowing where to go makes entrepreneurs stop in their tracks in disbelief.
What’s even more eye-opening is when they decide to get a loan and find out (the bad way) they need a strong business credit history to get approved for one. Then they can’t get a loan and can’t help their businesses grow.
You may think there’s no hope for this financial situation. However, there is.
This article, by Camino Financial discusses how to build business credit. It’s one of the best proactive steps you can take to ensure that your business stays on track with growth. A positive business credit history lets lenders know you’re creditworthy when you need funding.
Here’s what a business owner did when he was rejected for a loan even though his personal credit history was above par.
A demolition service needs a loan to build a stronger client base
An owner of a successful demolition/wrecking service, Andrew, inherited his father’s equipment. Even though he makes regular repairs, he needs to purchase a hydraulic excavator.
By having larger equipment and more attachments, he can take on more projects like taking down industrial buildings and complexes. A friend might be going out of business in the near future and offers him a once-in-a-lifetime deal on a used excavator.
Andrew is a good money manager and always pays his bills on time. His personal credit score is 800 which is considered excellent. Unfortunately, he uses a personal checking account and credit card to track business costs and income.
To his amazement, he is turned down by a lender for a loan because he hadn’t built a business credit history.
It never occurred to him that he needed a business credit score when applying for a loan. Instead of caving into discouragement, Andrew asks his personal banker to teach him how to build business credit as quickly as possible. He also makes a temporary financial arrangement with this friend so that he doesn’t offer the excavator to anyone else.
First, the lender recommends that Andrew should open a business checking account and apply for a business credit card. This establishes his business as a separate and distinct entity.
Next, Andrew applies for an employer identification number that a business uses instead of a personal social security number. Then, Andrew meets with an attorney who sets up his business as a limited liability company (LLC) rather than a sole proprietor.
He purchases a separate mobile business phone and gets a post office box for his business mail.
He learns how to build business credit while keeping his business operations separate from his personal financial information.
Now, Andrew can build his business’s credit history by continuing to pay bills on time and set up trade credits with suppliers. He pays off his credit cards and other debts each month.
Likewise, he reviews his business credit report regularly to identify areas that might cause his business score to plummet. Within months, Andrew’s business credit score is 77, indicating his business is the lowest risk for getting a loan.
When he reapplies, Andrew receives the loan and purchases the excavator.
What about you, do you know what’s your Business Credit Score?
It wasn’t pleasant when Andrew heard, “Your loan has been rejected“, but that didn’t stop him from doing everything he could to grow his business. In fact, you’ll be amazed, like Andrew, how quickly you can build a business credit score to qualify for bigger and better loans.
Now that you know how to build business credit, are you ready to take the necessary steps to ensure you capitalize on business loan opportunities that arise?
As you’ve seen, having both personal and business credit histories are equally important when you apply for a loan. You put your business in a position to get affordable loans with better rates and terms.