Business Credit

The saying “You need money to make money” is true. Starting a business of your own can be a costly endeavor, and you’ll probably need to find a way to finance some of your start-up costs.  If you are an existing business, you may have started out as a Sole Proprietor; it may be time to consider restructuring to a Limited Liability Corporation (LLC) or S Corp.  There are a few things you can do to increase your chances of establishing business credit.

Business Plan – Creating a detailed business plan will help guide your business in the right direction and give you an advantage when dealing with creditors. Creditors are more likely to approve a loan for the business owner who has outlined his business expenses in a business plan.  A well-written business plan should include the following: an executive summary; a business overview; an operations plan; a market analysis; a description of products and/or services; an analysis of the competition; a description of the management team; sales and marketing ideas; financial information; and projections. Writing a detailed business plan takes a considerable amount of time and effort, because they require a lot of research and can range from 20 to 50 pages in length. If you’re strapped for time, consider hiring a professional to help you.

Credit Cards – Apply for a credit card in the name of your business, pay for some expenses with it and make on-time payments to help you build and establish your business credit and prove to lenders that you make it a priority to pay what you owe. Obtaining a business credit card from a major company during the start-up stage is unlikely, because they typically require a business to operate for a minimum of two years before consideration. However, community and county banks are more likely to extend a line of credit to start-ups. You can increase your chances of getting approved by including business records with the credit card application.  You should never involve your personal credit when applying for a business credit card; if the debt increases and your business goes under, so will your personal credit rating.

Vendor / Supplier Lines of Credit – Where possible, establish a line of credit with vendors and suppliers.  Payment terms are not typically offered unsolicited.  You most likely will need to request terms, so start out conservative; net  15 or 30 day terms with a reasonable credit limit.  Remember the goal here is to build credit by demonstrating that your business is creditworthy by making timely payment for amounts due.

By the Book – Show creditors that you’re serious about your business by registering your business name and incorporating as a limited liability company (LLC) or S Corp. Make sure you follow your state and local guidelines for being recognized as a business. Incorporating as an LLC or S Corp are the most popular choices for small businesses, however, you should consult an attorney or a tax professional regarding which option is most appropriate for your business.