In order to start a business, any business, you first need capital. From getting your business registered with the state to renting an office or even signing up for home Internet service to start a home-based business – it all takes money; and most business owners become surprised at just how expensive their dream ventures tend to be. Some options of obtaining credit include taking out a loan, obtaining a line of credit with a bank or credit union, and prospecting angel investors with deep pockets and forward-thinking dreams just like yours. For pretty much all of these options, you should have a decent business credit score. The following will help you obtain business credit when you’re starting a business and you just don’t have the cash on hand to fund it.
Your Company is a Legal Entity Separate From Yourself
Unless you are starting a business as a sole proprietor or as a partnership where each of you files your social security numbers on your tax forms instead of an Employee Identification Number or Tax ID, your business when it is registered with the state becomes a legal entity that is separate from yourself. This absolves you personally from liability and it allows the business to build credit just like you can. With this business credit comes many perks. The business can rent office space, obtain a credit card and obtain services such as light, water and others. Business credit can also help other businesses decide whether or not they want to do business with your separate legal entity.
The Downside of Credit
Business credit only becomes a problem when you don’t have any, or when it’s taken a turn for the worse. If you have a few debts that your business hasn’t paid off, cut whatever corners you have to cut and start paying off the small balances first. Eventually those will go away and you’ll be left with the larger ones. Attempt to negotiate with your debtors to see if you can take your balances down, or have the interest rates lowered on any that may be accumulating.
Get a Copy of Your Credit Report
When starting a business, your credit score will likely be fresh and basically nonexistent. Get a card and pay the balances off as best you can, while remaining current on all payments, and your credit will build. For those with less-than-stellar credit scores, you will want to obtain a copy of your credit report from Experian, Trans Union and Equifax. Those are the big three companies and you should obtain a report from all three in order to develop the most accurate picture of the status of your business credit.
How the Score is Calculated
Your business score will range from the number 0, which is no credit, to 100, which is considered low risk for creditors. That means that if you are trying to obtain a line of credit at the bank, the bank manager might approve the loan right then and there with a 100 business credit score. Let’s see what the bank manager will see when you present him or her with a perfect credit score.
When a vendor or other person or business checks your credit, that person will be able to see the number of trade experiences your business has undergone, any outstanding balances that your business may owe, your open lines of credit and other information, such as public record information and the official business demographics.
If you are just starting a business, put effort into building your credit so that you can seem trustworthy at a glance to potential business partners, vendors and otherwise creditors. If your credit score isn’t anything to write home about, start putting effort into satisfying the balances you owe so that creditors will once again begin to trust you, or trust your business as the case may be.
If your business is really off the rails and there’s no bringing it back from the depths of the indebtedness, consider filing bankruptcy. Sure, you’ll have a negative mark on your business credit report for seven years, but oftentimes you can negotiate with creditors and satisfy your debts so that it looks much better for anyone looking to do business with you in the future.
And if things are super-bad, consider obtaining the services of a financial advisor. Or a skilled accountant who can maintain a good bill-paying record for you so that you can put your business credit woes on the back burner as you let an expert handle all the money-stuff. After all, starting a business is hard work and the last thing you need on your mind is pressing collection letters and phone calls. Good business credit is important and if you don’t have it, the time to get started building it or repairing it is right now.
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