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7 Compelling Reasons to Start Building Business Credit in the New Year

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Start Building Business Credit

With a New Year just around the corner this is a time for small business owners to benchmark overall performance and set plans for moving forward in the year 2016.

In a lot of ways this was a year of innovation, change, and efficiency in small business lending. Although big banks have loosened their belts and started lending again; their focus still remains on issuing large loans to big businesses. start building business credit

Since applying for a loan or line of credit with a bank requires a small business owner to produce a plethora of documentation such as financials, personal tax returns, business tax returns, etc.; alternative lending and non-traditional lines of credit  have become a much more viable and attractive option for small business owners.

I’m sure you’ve seen the rise of online business lending platforms pop up over the internet this year alone.  Online platform such as Kabbage are working hard to fill the void in the marketplace for quick and easy business loans online. There is no question the demand for fast, cost-effective, go-to funding sources for small business owners will continue to grow in the upcoming year.
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7 Ways to Maximize Your Business Credit Score

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Business Credit Score

 

Let’s suppose for a moment that you’ve taken a few steps necessary to establish business credit for your company.  You got approved for a line of credit with a few suppliers, made purchases, paid your invoices and see the payment experience listed on your business credit report.

After seeing your business credit score you decide to jump into the big leagues and apply for a business credit card without supplying a personal credit check or personal guarantee. 

You’re shocked to find out that your business was declined and you can’t seem to figure out why. You have a favorable paydex score with Dun and Bradstreet so what’s the problem?

Believe me this happens more than you can imagine and because of all the misinformation circulating the internet about what it takes to build a strong business credit score and report many business owners simply throw up their hands and say well at least I gave it a shot. 

First, let me be the one to inform you that in order to qualify for financing other than vendor credit lines you will need to have a strong business credit score and report with all three major business credit bureaus.

Not one, not two but all three!

In addition to getting listed with all three major bureaus you also need to build a strong profile and score.

7 Ways to Maximize Your Business Credit Score

  1. Pay Better Than On Time – Paying your invoices 10, 15 or even 20 days ahead of the due date can classify your business as one that pays ‘better than terms’. This looks extremely favorable on your credit files and can increase your scores.
  2. Minimize Debt to Credit Limit Ratios – Keep your debt to credit limit ratios at no more than 30%. This helps reduce your company’s overall debt exposure. You don’t ever want your company to be perceived as overextended.
  3. Establish Payment History – Making a onetime purchase with a supplier hardly establishes your company’s creditworthiness. You should make purchases using your credit on a regular basis in order to build a solid payment track record. The longer the payment history the stronger the file you will have.
  4. Add Trade References – If you have suppliers that are not listed on your files you can easily add them by utilizing DNB’s trade reference builder program. By adding just a couple of additional trade references with years of payment history you can dramatically improve your business credit score.
  5. Increase Credit Limits – Don’t hesitate to request a credit limit increase with suppliers or creditors that you have a good track record with. But keep in mind, if you’re not utilizing your existing credit lines and using a good portion of the limit a supplier or creditor will flat out deny your request.
  6. Establish a Reporting Bank Loan – Getting a reporting bank loan on your files is priceless and can open more doors than you can imagine. Many creditors realize the scrutiny that banks impose on a company in order to get a loan so simply having one speaks volumes for your company’s creditworthiness. A good strategy is the CD Secured loan which many banks still offer to this day.
  7. Diversify Your Credit Types – This by far is one of the most important factors for a strong business credit score and report but it’s the one that is least discussed. Your company should have a diversity of credit types reporting on its file such as trade credit, revolving credit, lease credit, lines of credit, etc.

By getting listed with the major business credit bureaus and applying these seven strategies you can expect your company to be well on its way to maximizing its business credit scores and reports.

Ready to maximize your business credit scores? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, Banking contacts, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building system helping business owners build small business credit. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

Build Business Credit and Protect the Corporate Veil

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Build Business Credit

 

Setting up a corporation helps shield your personal assets and personal liability for the debts or actions of your company. It’s treated as a separate legal entity and you must treat it as such which includes avoiding the co mingling of funds, assets and credit files.

One of the reasons to build business credit that gets overlooked the most is protection of the corporate veil.

Unfortunately, corporate veil piercing is the most litigated issue in corporate law today and is more common with small privately held entities. While there are many factors that can cause this let’s focus on the alter ego theory.

Under the alter ego theory a creditor looking to pierce the corporate veil must prove that the owner did not operate his entity as if it were a separate legal entity. This includes some of the formal requirements such as required meetings and recordkeeping.

But did you know this also includes separating your personal financial affairs from your entity’s financial affairs?

By co mingling assets which involves using personal resources like your personal credit cards for business purposes and vice versa you open yourself up to the alter ego theory.

So does this give you incentive enough to build business credit for your company?

You see one of the underlying benefits is the ability to establish a new and separate credit file that is unique from your own personal profile. By doing this you can obtain trade credit, credit cards, leases and loans strictly in the name of your business.

This enables you to separate the financial affairs of your business completely eliminating both your personal credit and personal liability from the equation.

When you decide to build small business credit, the following are the first basic steps:

  1. Incorporate or form a Limited Liability Company
  2. Obtain a Business Federal Tax Identification Number
  3. Complete Corporate Compliance
  4. Open a Small Business Bank Account
  5. Get Listed with the Business Credit Bureaus
  6. Establish Business Credit History
  7. Optimize your Business Credit file and Scores

As long as you respect this separateness, your business entity will have no issues being recognized as a separate entity and will be ultimately responsible for its own debts.

Now there may be instances where a personal guarantee is required to secure a credit line or loan especially if your business has not established enough creditworthiness but make sure the agreements are properly recorded and formally authorized by your entity if in fact your entity’s management structure requires it.

Remember, proper recordkeeping is critical to protecting your limited liability even when you establish business credit in the name of your business.

Don’t leave yourself open to a possible alter ego theory because you don’t want to have unlimited, personal liability for all the debts of your business.

Ready to start building business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to premium vendors, business credit cards, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) => 

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building system providing business credit without a personal guarantee. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

Establish Business Credit Video: Key Steps Before Getting Started

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Establish Business Credit Video

Watch my short video recording with AllBusiness covering the following question:

What are the key steps to complete before you start to establish business credit?

Establish Business Credit Video

In what ways have you started to establish business credit for your company?

Are you ready to build business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step by step business credit building system? A system that provides you access to premium vendors, business credit cards, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building system providing business owners business credit without a personal guarantee. He is a business credit blogger for All Business.com, a subsidiary of Dun & Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.

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