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8 Steps to Building Business Credit
I felt inspired to write this post after receiving so many questions about business credit and how you go about getting approved for cash credit lines despite the current credit crunch in the economy.
Let me be the first to tell you that businesses are still getting cash credit and business financing today but lenders have adopted new criteria and stricter guidelines that many business owners fail to recognize or adapt to.
It’s more important now than ever to be pro active and informed on what is required to obtain business financing for your business. I don’t recommend anyone to wait until you need financing to start because the business credit building process takes time and doesn’t happen overnight.
Ever heard the phrase ‘Dig your well before you get thirsty?’
I’ll even give you the shovel!
Fair enough?
Great!
It’s important to understand that the biggest benefit to building business credit is not just having access to cash credit. One of the greater benefits is obtaining cash credit that does not report to your personal credit profiles. However, before any business credit building begins you’re business must meet certain corporate conformity guidelines in order to prevent it from getting red flagged by the business credit bureas.
When you start building business credit and progress in the process by establishing trade credit and eventually cash credit it’s important for you to understand that is not the end result that you should be shooting for. After building your business credit foundation the cash credit that you obtain should only be just the beginning!
You can be assured that you will obtain as much cash credit for your current needs when you follow the right steps but whether your business obtains $50,000 or $200,000, if you continue to follow the right step-by-step process you will be able to increase your cash credit lines to double or even triple the initial amount.
‘Eight Steps to Building Ultimate Business Credit’
1. Corporate Conformity
This is where you’re business credit foundation is set up and it’s critical not to take short cuts or side steps because you’re ability to obtain financing can be hampered. At this stage it’s vitally important to structure your business entity properly from both a tax and asset protection standpoint. In additon, both the business credit bureaus and lending institutions will verify certain information about your business that must meet specific lending guidelines. In order to achieve the best business classification ratings make sure you meet all the requirements before moving on to the next step in the business credit building process.
2. Business Plan
This is not a mandatory step, but it’s necessary for your overall business success as well as a door opener for specific lenders.
3. Business Credit Profile
Once you have completed corporate conformity you will be ready to set up your business credit profile with Dun & Bradstreet as well as steps to activate your business credit profile with Corporate Experian and Business Equifax.
4. Tier 1 Trade Accounts
This is the first step where you will be setting up trade accounts for your business that are known to grant small amounts of credit to businesses that have no credit history.
*Please note –
Even if you have been in business for several years doesn’t mean you have business credit history. After setting up your business credit profile there will be no history so you will need to start small and gradually build it to larger amounts over time.
5. Tier 2 Trade Accounts
At this point you set up business trade accounts for your business that are known to grant credit to businesses that have little business credit history. Because most Tier 1 accounts will now be reporting on your business credit profile you can now apply for Tier 2. When Tier 2 vendors pull your business credit report they will see that you have some good history so they will grant additional credit in amounts higher then approved for in Tier 1.
6. Tier 3 Trade Accounts
These companies will grant credit in higher amounts than what was granted from Tier 1 and Tier 2 accounts. Those members with good personal credit history may also be ready for bank financing at this stage. Each tier builds upon the previous tier. Many of my clients who want to apply for bank financing at this stage can but at this stage they will need to use their personal credit scores for approval and will need to be in the 680+ range. If personal credit scores are below the necessary range then I suggest enrolling in a credit restoration program.
7. Tier 4 Cash Credit Accounts
Tier 4 accounts consist of vendors who will grant your business cash credit cards, typically with a Visa or MasterCard logo. Benefits to you include no personal guarantee and affect on your personal credit profiles.
8. Advanced Business Financing
At this stage of the process your business credit file is built, you have history, business scores, rating; access to funding and you can continue to obtain even larger amounts of financing by following my advanced business credit building strategies. There are many different advanced strategies to obtain additional capital with and without a personal guarantee at this stage.
Remember it’s not only about how much cash credit you obtain initially, it’s about setting up yourself for much larger amounts of capital for your business. This is accomplished by following a proven simple step-by-step process to building ‘Ultimate Business Credit!’
Remember – “People only see what they are prepared to see.” ~ Ralph Waldo Emerson
To Your Success!
Marco Carbajo
About the Author
Marco Carbajo is a business credit specialist, author, speaker, and founder of http://www.startbusinesscredit.com . Want to learn more about how to build business credit and obtain unlimited financing for your business? Claim Marco’s popular FREE business credit seminar ($597 Value), available by simply submitting your email below =>
Business Credit Lines: How to Qualify
While most of you are familiar with the stories surrounding several national banks that have cut business credit lines for small business it’s important to note that there are state banks, credit unions, and some regional banks that are issuing credit lines to small business. Qualifying for small business credit lines is not as difficult as you are led to believe.
When you are prepared and educated on the approval process you can have full confidence in knowing that you can obtain as much bank lines of credit as you need with as many banks as you wish. Now, let me be the first one to admit that the following information does not guarantee an approval but you can bet that it does greatly increase your chances.
Hopefully you already have a business bank account and a comfortable relationship with a banking contact. I suggest you apply for no more than a $50k line of credit because in most cases you will not have to provide tax returns or profit and loss statements. This makes the application process much easier with less paperwork. I have put together the following checklist for you that can be used with as many banks as you wish to establish lines of credit with:
- Business credit file with a minimum 80 paydex score
- Personal credit score of 680+
- Bank rating classification of low 5 (minimum)
- Balance rating classification of low 5 (3 mos prior to applying)
- No NSF track record
Your small business banking history is vital to your ability of being able to get approved for a line of credit. Your bank will look to see how long that relationship has been established, so once you get your account set-up don’t change banks! There’s nothing wrong with having several business bank accounts and relationships with multiple banks.
Keep in mind that in order to qualify banks will refer to your business bank account because it reflects how you manage your cash flow. Lenders want to know that your business cash flow is capable of handling the business debt and expenses on a consistent basis. Bank accounts with low average daily balances, or that show many NSF returned checks, can get your business loan applications declined right away.
If a loan amount requires a $1,000 month payments then lenders need to see at least a “Low 5″ bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months. Let’s take a look at these numbers:
| Bank Rating | Account Balance | Bank Rating | Account Balance | |
| Low 4 | $1,000 – $3,999 | Low 5 | $10,000 – $39,999 | |
| Mid 4 | $4,000 – $6,999 | Mid 5 | $40,000 – $69,999 | |
| High 4 | $7,000 – $9,999 | High 5 | $70,000 – $99,999 |
Three Factors Banks Review For Approving A Small Business Line Of Credit
1. The first factor is your balance rating. This rating is your average minimum balance maintained in your account over a three (3) month period. $10,000 will rate as “Low 5″, $5,000 rates as “Mid 4″, $999 rates as “High 3″, and so on. You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5″ rating, most lenders will assume your business has little ability to repay.
2. The second factor is the bank rating cycle which is three (3) months. You’ll want to have at least a low 5 for the three months prior to applying for a line of credit or larger loan.
3. The third and final factor has to do with how you manage the account. NSF (bounced) checks destroy bank ratings. From this point forward, NSF checks are something you can’t let happen. I would suggest that you add overdraft protection to your account as soon as possible.
This system works every time as long as you’re personal credit scores are 680+ not in the low 500 range. If your scores are in the low 500’s, it’s best to start repairing your credit and consider a CD Secured loan with your bank. Remember, you can set up $50k credit lines with as many banks as you have accounts with! The best part of all is this is just using one of my business credit building strategies!
P.S. CLICK HERE to join as a business credit member and obtain access to my private list of banking contacts and business credit resources.
To Your Success!
About the Author
Marco Carbajo is a business credit specialist, author, speaker, and founder of https://businesscreditbuilders.org. Want to learn more about how to build business credit and obtain unlimited financing for your business? Claim Marco’s popular FREE business credit seminar ($597 Value), available by simply submitting your email below =>
Building Business Credit: Overview
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1. Building Business Credit: Entity Selection
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