Independent contractor, is this a business entity?

Question

Hello

I have been a real estate agent ( independent contractor ) for the past 6 years.

My personal credit score is 790, I have 4 credit cards and a car loan. The credit cards have very low or no balance at all.

I would like to start applying for business credit where I could get revolving credit in the 10's of thousands, as I want to have working capital for investment properties.

In the eyes of a lender have I been a business entity this entire time, or do I need to open a DBA account under a new name? Or do I need to file an LLC?

I have heard a lot about no doc unsecured business credit with a personal guarantee is the following an example of this: https://www.chase.com/online/business-credit-cards...

What product am I after to get working capital for upcoming projects?

Thank you

John Blackman · Answer

This may sound against common wisdom, but you may have to live with a lower personal credit score while building your business credit if you want to use personally guaranteed debt.  I have kept a very high credit score for most of my life, but once I started doing Real Estate projects that required capital gaps, I would run up business and personal debt for short periods to make deals work.  They all had an equity asset behind them, so I didn't consider them bad debt, but my score did go down to the low 700s.

Even with a lower score, the utility of that debt has more than paid for it.  If you have already secured your home loan when you have high score as well as your car if you choose to have a car note, then taking a small (100 point ish) hit on your credit is not that bad for the business utility it provides.

Just make sure the debt can be recovered and is applied to a project where there is plenty of equity.

Nicholas B. · Answer

I agree with @Matt Motil. A DBA is a designation given to a business entity, not a way of creating one.

It's going to take time to establish a solid history, just like starting over again as a teenager trying to establish a personal credit profile from scratch. Sign a personal guarantee and get a business card. Use it responsibly and ask for credit limit increases every 6 months. After a couple years, you should be able to get credit in the business's name without the personal guarantee.

Matt Motil · Answer

A DBA is "doing business as" and provides no asset protection. You should create an LLC. They are cheap and easy to setup.

Rich Hupper · Answer

Thank you @Nicholas B. , It appears I need to start establishing my business entity so I do not damage my personal credit. When it comes to a business entity does a DBA " company name" count as an entity?

Nicholas B. · Answer

Is there a particular reason you want to do this as a business loan? With no prior biz credit and no D&B score, you're likely to qualify based on your personal credit anyway. You don't need a business to qualify for high limit CCs. My Homedepot card (Citi) just got bumped to 30k and Lowe's (Synchrony/GEMB) is pushing 20k - in my personal name.

Just know that using revolving credit like that will likely damage your credit score as long as you're floating the balance. These types of cards in a business name are also likely to report on your personal credit as long as there's a personal guarantee. That's not to say that you can't find a loan that will not report, it's just my experience that these CCs show up on credit reports (I work in retail finance, so I see thousands of personal credit reports).

You may be able to take out an unsecured working capital line of credit in a business entity name that will not report to your personal credit report, but in the 10's of thousands with no prior relevant experience is probably a stretch. History is king and self employed or not, you've never taken a business loan, so you're starting from scratch in the eyes of a conventional lender. I believe that's why hard money lenders do so well in this field.

Rich Hupper · Answer

Thank you

Wayne Brooks · Answer

No, you are not an entity, you are self employed.  Ask your banker the best way to go.  Credit lines are available both personal and business.