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How to Build Bank Credit for Your Business

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bank-creditRecently I shared the benefits of building business credit with each of the business credit agencies. Separation of personal and business credit is a must for small business owners in order to eliminate personal liability and protect the integrity of the corporate veil.

 

 

While this strategy creates a Paydex, Small Business Credit Risk Score, and Intelliscore for your business it’s not the only rating you should pay close attention to.

 

Your business will also need to establish effective ‘Bank Credit’.

 

Bank credit is totally separate from building business credit and in no way affects your ability to build strong business credit scores.

 

“Bank Credit” makes your business more credible in the eyes of lenders.  In this post, I want to share with you the ‘3 Main Components of Building Bank Credit’ which are:

 

  • Business Bank Account & History
  • Bank Rating Number
  • Obtaining Your First Business Bank Loan

 

So let’s get started!

 

Business Bank Account


The first step in establishing positive bank credit is to make sure that your business name and mailing address, as listed on your business bank account, matches exactly how your business name and address appear on any legal paperwork that’s been filed with the State. It must also match exactly with the name and address that appear on your Federal EIN paperwork. If it doesn’t match you’ll have to correct it immediately!

 

Business Bank History


Most lenders also determine the age of your business by the date you first opened your business bank account and not the date that appears on your Incorporation, LLC, or EIN paperwork.  However, in some instances banks may also require 24 months seasoning from the start date of your business as well.

Your business banking history is vital to your ability of being able to secure larger business loans with banks. Lenders will look to see how long that relationship has been established, so once you get your account set-up don’t change banks!

 

The longer your business banking history, the better the borrowing potential you have.

 

Bank Rating Number

 

 Your business bank account 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.

 

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
 
 
 
 
 Bank ratings consist of three factors…

 

 

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 larger loans.

 

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.

 

Obtaining Your First Business Bank Loan

 

Getting your first business loan from a bank can seem like an impossible task. The majority of the business loan applications at banks get declined because banks won’t lend to just anybody … or will they?

 

This one business bank loan strategy provides a powerful boost to building business credit fast. The business bank loan needs to be in the exact name of your company. It should be under your Federal EIN and report to the business credit agencies, specifically Equifax Small Business and Corporate Experian.*

 

So how do you accomplish this? Under this Bank Loan Program you will be securing a business loan with a certificate of deposit (CD) at the bank that is extending the business loan.  You’ll make a deposit into a CD account at an SBA preferred lending bank. Then, you receive a business loan for 100% of the value of the CD.

 

This process works very well and works every time as long as you’re personal credit scores are not in the low 500 range. If your scores are in the low 500’s, it’s best to try smaller business banks and talk to an individual banker first.

 

The Benefits of a Secured Bank Loan

 

  • It will appear on your business credit report just like any other loan.
  • There will be no note in the file, or on credit reports, that show it as “secured”.
  • It will make your business credit report stand out to other lenders and creditors who obviously know how difficult it is to get a business bank loan.

 

If you’re personal credit is a large issue and you just can’t find a business bank to do the CD program for you … don’t worry. You can still build your business credit without the bank loan; the bank loan just makes it faster. 

 
 

 *N.E.C. members are provided access to our list of banks who have done the CD-Secured Business Loan program

 

  

Remember – The secret of business is to know something that nobody else knows. ~ Aristotle Onassis

 

 
To Your Success!

Marco Carbajo

About the Author

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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 =>

Is You’re Credit Card Company Using ‘Balance Chasing’

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business-credit-card

Credit Card Company

As credit card profiling, credit limit reductions and interest rate hikes weren’t enough there is an even greater more dangerous tactic that creditors are using causing a snow ball like effect that’s hitting even the most pristine credit worthy consumers.

By 2010 there is an estimate that there will be $2 trillion less in credit limit availability in the marketplace or 40%.

Recently there was a video on CBS about Miriam Majors, a young woman who had her credit limits reduced because of credit card profiling and as a result the ‘balance chasing’ tactic that creditors are also using created a snow ball effect of problems for Miriam.

What is ‘balance chasing’?

If a creditor sees that another creditor has reduced your credit limits therefore increasing your debt to credit limit ratios than this is what triggers the second creditor to issue an interest rate hike.

Here’s what happened to Miriam Majors:

The Snowball Effect

  • Her credit card’s (creditor #1) credit limit was reduced by $7,000
  • Her FICO score went from 783 down to 733 (50 point reduction)
  • Her other credit card company (Bank of America #2 creditor) raised her interest rate from 7.9% to 28.99%!
  • Her monthly payment increased with creditor #2 because of the interest rate hike
  • She spent her personal time to find out why this happened with Bank of America
  • No comment from Bank of America just policy because her limits and personal credit ratings changed

Her solution:

  • She canceled her credit card account with Bank of America
  • She opened a new credit card account with her credit union

Don’t think for a minute that your 750 or 780 credit score is immune to what’s going on in the credit card industry. As you can see that one creditor that decides to reduce your credit limit can trigger a snow ball or domino like effect on your credit and finances and leave you powerless to defend it.

Miriam Majors did take action but unfortunately the damage is done and even though her credit score is within prime rate qualification the time, frustration and money it cost to her is something that will stick with her for life.

Remember –  Anytime you suffer a setback or disappointment, put your head down and plow ahead.  ~ Les Brown

Looking to build your 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 vendor lines of credit, fleet cards, business credit cards with and without a PG, 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 business credit building audio seminar ($497 value) =>

To Your Success in Business and in Life!

Did This Blog Help You? If so, I would greatly appreciate if you like and shared this on Facebook and Twitter.

About the Author

Marco Carbajo

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. 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.  

Top 10 Credit Score Myths

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credit-scoreMost individuals who have made it a habit to annually check their credit reports with the three credit reporting agencies; Equifax, Experian, and TransUnion have found themselves in a state of confusion when it comes to understanding credit scores. The most commonly used credit scoring model is FICO® and the new kid on the block known as Vantage Score.

While these scores are important in obtaining credit, loans, and lower interest rates, there seems to be several credit score myths that need to be debunked.

Here are my ‘Top 10 Credit Score Myths’

Myth:  There is only one credit score.
Fact:  There are three credit scores; one from each of the aforementioned agencies.  Equifax’s credit score is called the Beacon Score, Transunion’s credit score is Empirica Score, while Experian has embraced it’s own new credit scoring system called Vantage Score.

Myth:  Your score will decrease every time you check it.
Fact:  Not true.  You can ascertain what your score is as often as you need to and it will not lower your score at all. Go to http://www.myfico.com to order your scores today.
Click to continue …

How to Increasing Monthly Positive Points to Increase Credit Scores

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credit-cardYour payment history accounts for 35% of your credit score according to Fair Isaac. The most common advice you will hear from every so called “credit expert” is make your payments on time. While this is the basics of building and maintaining a good credit score let’s go way beyond that.

Each time you make a monthly payment towards your credit card balance whether on time or late your credit card issuer reports your payment to the credit reporting companies they subscribe to on a monthly basis. Every time you make a timely payment it counts as a positive point factor to your payment history. The more timely payments you make the more positive point factors that go towards your payment history therefore boosting your credit score.

There is a way to double and even triple your monthly positive point payments on one single trade line each and every month! This is done by breaking up your monthly payment to one creditor into three payments each spread over a 10 day period. For example, your minimum payment is $75 on a credit card and the due date is the 30th of each month. You would send a $27 payment for your creditor to receive on the 10th, 20th, and 30th. This would total $81 and would count towards three positive point payments to your account instead of one for that month alone. This can be done with multiple cards but be sure you are not breaking up minimum payments that are less than $75 because it really would not be worth the effort.

Your probably wondering why the extra $2 on each payment. The reason is paying more than the minimum also increases your positive point factors and increases the chances of your creditor increasing your credit limits. The more you show your ability to handle your debt the better!

Remember, by making a higher payment and increasing the amount of payments sent to your creditors the more positive action your account will report to the credit reporting agencies.

Quick Tip

This seems like a contradiction, but it really is not. Many people think that to improve their credit score, they just have to pay off some debts and close their accounts. This is not exactly accurate. There are several reasons to think carefully before closing your accounts.

First, if you close an account you need (for example, if you close all your credit card accounts) then you will have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop.

Secondly, most credit reporting companies give high favorable points to those who have a good long-term credit history. That means that closing the credit card account you have had since college may actually hurt you in the long run. If you have credit accounts that you don’t use or if you have too many credit lines, then by all means pay off some and close them. Doing so may help your credit score – but only if you don’t close long-term accounts you need.

In general, close the most recent accounts first and only when you are sure you will not need that credit in the near future. Closing your accounts is a bad idea if:

1) You will be applying for a loan soon. The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates.

2) Closing your accounts will make your overall debt balance too high. If you owe $10,000 now and closing some accounts would leave you with only $1,000 of possible credit, you are close to maxing out your credit which gives you a bad credit rating.

In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial. Don’t make the mistake of closing lots of credit accounts just to improve your score.

Looking to build your personal and 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 vendor lines of credit, fleet cards, business credit cards with and without a PG, 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 business credit building audio seminar ($597 value) =>

About the Author

Marco Carbajo

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness, 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 the SBA Community, 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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