How to Get Business Credit
I learned a ton of great information from Tom Kish about how to get business credit during Week Two of the Credit and Debt Summit.
How to Get Business Credit
Tom Kish is the author of Shortcuts to Money, and he’s one of our experts at the Credit and Debt Summit. Basically, Tom teaches people how to get business credit, and then he teaches them how to use it to expand their businesses.
Here are three highlights:
The first secret about how to get business credit is this: Don’t apply in your own name. A lot of entrepreneurs walk into a bank and fill out a business loan application using their own name. Kish says the banks will basically laugh in your face if you do this.
Banks want to do business with LLCs, S-Corps, and C-Corps. Banks know that corporations might buy insurance products through the bank, they might build investment accounts or retirement accounts, or they might process their merchant services through the bank.
And being a sole proprietor—even one with a Fictitious Business Names or “DBA”—just doesn’t cut it, says Kish.
But if you register your business as a corporation or formal partnership, the banks will practically salivate at your door.
The second secret about how to get business credit is this: Keep your personal credit score high. A lot of lenders will look at the owner or principal’s credit score when considering a loan application.
This doesn’t mean that you should apply for business credit under your own name. Once again, you absolutely should not. It does, however, mean that your personal credit score might be considered as part of the overall process.
So if you have a bad credit score, be sure you know how to build credit. Namely, get your outstanding debt as low as you can, pay your bills on time, and scour your credit report for errors. (Be sure to come back later for some hot information from Brian Diez about errors on your credit report!)
And the third secret I’ll share is this: Apply for more than one loan. Let’s say you have a business registered as a corporation and you want a $150,000 line of credit. Instead of applying for one big loan, try breaking it into three or four loans that add up to $150,000.
You will have much more success if you start by looking for a bank that will provide you with $30,000 or $40,000 line of credit. Once you secure this loan, apply for another one. And then another.
Heck if you are just getting started, apply for a $5,000 line of credit. Get your foot in the door and get the ball rolling.
One thing you should know about how to get business credit is that getting the first loan is always the hardest step, especially if you don’t have any assets or much history. Look for a bank that provides “stated income” loans that are unsecured. This means that you won’t have to provide tax returns, collateral, or a business plan.