New LLC, business line of credit with bad personal credit?

Question

Is it possible to receive a business line of credit using just your EIN with a new LLC? If so, what steps would one need to take to achieve this?

David Dachtera · Answer

@Junior Silva,

Actually, yes, but it's a longer process.

First register your LLC for a DUNS number from D&B. There is a free option, but like most places, their staff is trained and motivated to get you to commit to something pricey paid monthly. Stay out of that trap.

Start out getting Net-30 accounts: accounts which allow you to purchase and pay the balance owing within thirty days. Most merchants doing this will want you to complete a few purchases first to show you at least have buying power and "your money is good" before they will grant you Net-30.

The initial goal is to buy on Net-30 terms from merchants who report to D&B. There are lists around the net and here on BP - search for 'em. Make timely payments - within the Net-30 terms - to achieve a D&B "PAYDEX" score of 80: "Pays as agreed". Even better: once you have the address to send payments, buy stuff then pay it before the bill arrives. That can get you a 90 PAYDEX. Five to seven such accounts will make a good start.

Build up about a year of that and start to apply for credit cards in your LLC. If you've done enough work building your entity's credit, you might get those without the personal guarantee. Less than ideal terms is o.k. - you're looking to build history. That's where you want to focus initially. When your entity's credit history gives you the bargaining chips, you can go for better terms.

Keep your entity's credit clean and, after about 6 months, start applying for trade lines from home improvement stores, office supply stores and other vendors.

Plan on building your entity's credit for at least three years before approaching institutional lenders for commercial credit / loans. They may still balk, initially. Having history in your entity, however, they will be less likely to dismiss you out of hand. Banks only make money when they lend.

I know - you were hoping for something more immediate. We all do. The reality of it is somewhat different. REI is a marathon, not a sprint.

The credit aspect is one of the reasons to establish your business entity structure FIRST, BEFORE you acquire assets in your entity(-ies): establish their buying power so your personal credit plays a smaller role in the process.

One of the leaders of my investment group started out ten years ago with a 480 FICo score including a personal bankruptcy and two evictions (he was out of work for over a year). Two years ago, one of his companies acquired a $1 Million line of credit from an equity group due to his building business credit in his entities. He also included a list of his classes that he's taken thru the education we're both connected with as well as a list of his completed REI projects. That's what actually swayed the equity group's decision: They saw he was educated as well as experienced. Lenders like educated investors.

Best wishes...

David J Dachtera

Junior Silva · Answer

@Jake Knight Thank you for your response, what I'm going to do is simply save up my money and fix my credit. I already hired a credit repair service to help me in that area, as I'm saving I will continue to study up and keep looking at the offers posted in the area I'm searching.

Jake Knight · Answer

Hi Junior,

You have to ask yourself, "what do I offer this lender in return for taking a risk on me?" Are you offering collateral that would help mitigate bad credit? While a line might help you in your business, the lender is not going to give you what is essentially a blank check, if it does not make sense for them.

I underwrite business loans/lines for a commercial bank and my firm considers real estate investors to be higher risk unless they have sufficient collateral (i.e. real estate or cash) of have a long track record of success.  There may be other companies who can do it, but again, consider what you are offering in return for the risk they would be taking.

Junior Silva · Answer

@Gladys Figueroa-Toledo it seems to be basically a credit repair company. Thank you for your input but, that's not really something I'm looking for right now.

Gladys Figueroa-Toledo · Answer

Hello @Junior Silva I'm not very knowledgeable in this topic but another close friend and investor mentioned to me that Epic Capital Solutions can help with establishing the business line of credit with no personal guarantee. I have not look at that, neither I'm associated to them. But, you could check it out and see if that could be an option for you.

Junior Silva · Answer

Thank you for your very detailed response @David Dachtera

Chris Soignier · Answer

Try Home Depot, Office Depot, and other retailers that want to lend you money that you'll spend in their store.   Often they're quicker to approve b/c they're motivated to use credit as a tool to increase sales.

W/ banks, usually your LLC will have to have a good, established credit history, or you'll need to personally guarantee the debt w/ our own solid credit rating.

Chris Erwin · Answer

@Junior Silva

Most finance groups will want a personal guarantee when you are looking for credit for a new LLC. They will pull your personal credit and look at your finances. There are hard money lenders that will not look at that, but they don't typically offer a line, they lend on an asset.

New LLC, business line of credit with bad personal credit?

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