Levels of Business Credit: Can Business Credit Make the Difference in Your Success?

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Grant Singleton
8 years ago
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1 Levels of Business Credit: Can Business Credit Make the Difference in Your Success?

Can Business Credit Make the Difference in Your Success? Noreen King says, I knew it was do or die as she built her business, Evolve Manufacturing Technologies.

2 Can Business Credit Make the Difference in Your Success? Noreen King says, I knew it was do or die as she built her business, Evolve Manufacturing Technologies. In an article in the 25th anniversary issue of Inc. magazine (page 156) she talks about how stressful it was starting her own firm and how she did it using her personal credit cards. Clearly Noreen King had guts and good business sense to grow her company by 2,121% (yes, over two thousand percent) in three years. But she relied on her personal credit cards to get started, and perhaps it didn t have to be that way. One of the most frequent questions we hear from entrepreneurs who incorporate with us is, How do I build business credit? While there is no simple formula, there is a process that allows you to establish a solid business credit rating over time. In our experience, we have found that small businesses are usually at one of three levels when it comes to building business credit: Third Place Uses Personal Credit No Asset Protection Score is Likely to Drop Causing Higher Interest Rates Level Three: Whatever It Takes Many entrepreneurial businesses have no real business credit. They use whatever method of financing they can get. At Level Three, they have bootstrapped it and used personal credit cards, loans from friends and family, equity from their home, etc. And they ve taken some serious risks: They are mixing business and personal credit which can create major headaches at tax time, They have no asset protection whatsoever, Their personal credit score may sink due to the level of debt they are carrying to fund their business. This can mean higher interest rates, even on existing credit card balances.

3 Level Two: Wising Up At Level Two you begin separating your business credit from your personal credit. When you get credit cards, lines of credit or trade accounts, you apply for them in your business name. At Level Two, you still will likely have to personally guarantee those business loans or credit cards, but many will not be reported on your personal credit reports unless you default. Level Two Business Credit is still valuable, however, because it helps protect your own credit rating which can be affected by too much revolving debt. Second Place Begins to Separate Personal Credit from Business Credit Applies for Credit in Name of Business A Personal Guarantee is Often Required Report is Less Likely to be Affected Rating is More Protected Level One: Established Business Credit If you are serious about small business success, you will want to move to Level One. That s where your business establishes its own business credit, and as much as possible, keeps it completely separate from personal credit. At Level One, you will have: Obtained credit with vendors and financial institutions that report to major commercial reporting agencies and paid them on time; Have an incorporated business for at least six months or, ideally, two years; Followed specific steps to ensure that your business appears stable and solid; Established strong credit profiles with the major business credit reporting agencies; Implemented accounting systems that allow you to generate financial statements as requested (preferably by a CPA); Have the ability to make a persuasive presentation to a lender or investor.

4 At Level One you will find yourself with opportunities to borrow or lease without having to rely on your personal credit or provide personal guarantees. This, of course, is the level most business owners want to reach as quickly as possible. There is no magical formula or guaranteed shortcut for reaching Level One, and some businesses may get there faster than others. First Place Able to Borrow or Lease without Using Personal Credit or Personal Guarantees Obtain Credit with Vendors and Financial Institutions that Report to Major Commercial Reporting Agencies Have an Incorporated Business for More than Six Months Established Strong Credit Profiles with Major Business Credit Reporting Agencies Able to Generate Financial Statements on Request Even if you don t plan to borrow, it is essential that building business credit becomes a part of your business from the start. Planning ahead is crucial. To succeed in business it is important to use all the available tools. One of the key tools is business credit. Too many entrepreneurs rely only on their personal credit to carry it forward. In a time of need, their personal credit may be tapped out. Business credit is the second line of credit, which you need to build up as you start to grow. It is important to understand the basics of business credit. I want to show you how to fast track your business credit building efforts: A Special Offer Our new book Finance Your Business: Get On The Financing Fast Track will help you learn how to build strong business credit ratings the right way. You ll learn: How to separate your business and personal credit; Loan options if you haven t built business credit, or if you have poor personal credit; Opportunities and pitfalls of crowdfunding and how to do it the right way; Easy ways to check your personal and business credit for free; And much more! Ali Brown says in the forward to our new book, I wish I had this kind of information when I got started!

5 About the Book Learn the Financing Fast Track Strategies Used by Successful Entrepreneurs and Investors Finance Your Own Business will teach: The power of business credit How to get an SBA loan The secrets of micro lenders The benefits of crowdfunding How to prepare your own PPM The risks of using retirement funds Financing scams to avoid Our business credit resource section provides you with valuable contacts to begin building your business credit. Finance your business, and grow the way other savvy entrepreneurs do it. Finance Your Own Business will give you lots of strategies for raising the money you need to get off the ground or take your business to the next level - Ali Brown, leading entrepreneur, mentor and angel investor About the Authors Garrett Sutton, Esq. is the best-selling author of Start Your Own Corporation, Loopholes of Real Estate, and seven other books. He practices corporate and LLC law in Reno, Nevada. Gerri Detweiler is an author, talk show host, speaker, and credit expert. She has written or co-authored five books and has been quoted in more than 3000 news interviews.

GUIDE TO ACQUIRING STARTUP FINANCING

GUIDE TO ACQUIRING STARTUP FINANCING 2015 American Institute of CPAs. All rights reserved. 15608-312 To make your business #CPAPOWERED, call today and let s get started. Contact information Address Phone