reprinted with permission from John michael
Whenever possible, try to establish credit lines that will grow along with the business. For example, in setting up a credit line with your bank, try to get a credit line based on a percentage of your receivables, rather than a constant, static amounts. Chances are your credit line will be reviewed by your bank annually and will be subject to ceilings and restrictions, but try to build as much flexibility into your borrowing relationships as you can. This will leave you better equipped to finance fast growth. Also try to establish credit lines with your trade suppliers that grow along with your business as well.
Establishing the business's credit should be started before the company needs it. No lending institution wants to lend money to a business in need of cash flow. The business can start out using the owner's or officer's credit to gain approvals under the business name, but as the business grows it should start to establish it's own credit history and credit profile in order to take on business credit of it's own. This is possible with a Corporation or Limited Liability Company (LLC) using the corporation tax identification number
When officers and owners use their own personal credit profiles to obtain credit for the business, they risk the chance of lowering their own personal credit scores. There are two reasons business owners should try not to use their personal guarantee on business credit. First, the individual signer is liable if the business cannot make the payments and second the credit obtained for the business can affect the person's personal credit score.
Keep in mind, your personal credit score is based on several factors, including available credit, the amounts of available credit used, late payments, and much more.
Obtaining credit for a business is a process that should be established over time. The older the business the more options the business will have to build credit and obtain loans and leases without the use of personal guarantees. It is not easy to do this, but yet it is not impossible. The first step is to start building the business credit today.
A credit score is built by having lines of credit, credit accounts and trade references that report to the business credit bureaus. For most businesses it's very difficult to find a business willing to grant credit with no personal guarantee and without any previous credit history. If you have your own trade references, you should work with them to build the score. However most businesses need additional trade references that will grant credit and report to the credit agencies.
Some helpful business sites on building business credit:
* Wells Fargo Small Business - Loans and Lines - Comparison Chart
* Report on the Role and Function of Credit Rating Agencies
* FTC FACTS
* D&B Small Business Solutions
Some of my students have use this site with some luck (I know nothing about the service)
Business cash advance - http://www.amerimerchantcapital.com
Some other help tools
* National Business Association http://www.nationalbusiness.org
* Small Business Information Center/Research http://sbdcnet.utsa.edu/SBIC/industry.htm
* Urban Redevelopment Authority http://www.ura.gov.sg/
* Black Enterprise Online http://www.blackenterprise.com
* National Black Business Trade Association http://www.nbbta.org/
* National Black Chamber of Commerce Inc. http://www.nationalbcc.org
* Small Business Information Center/Franchise http://sbdcnet.utsa.edu/SBIC/franchise.htm
* Unites States Hispanic Chamber of Commerce http://www.ushcc.com
* KeyBank's Website Women Focus Section http://www.key.com/women
* National Education Center for Women in Busines http://www.e-magnify.com
