Do you need a business loan but you have poor credit? Here are very proven ways you can build your business credit fast with no personal guarantee.
Getting a business credit and small business loan is the most common goal of business owners, but there is an increasing demand for learning how to qualify for such loans without having to use a personal guarantee or personal credit.
Most experts in business are aware that one of the most crucial things a business owner can do is to ensure their personal credit is kept separate from their business credit. But, when almost all kinds of credit application or business loan require a personal guarantee from those interested, how is it then possible?
The only way you can keep your personal credit separate from your business credit is to build your business credit fast without having to personally guarantee the loans.
What is business credit?
Business credit is similar to personal credit. It is built before it is required. If you have plans to start a business, it is ideal to have savings in the event of emergencies but sometimes that may not be adequate.
Business credit is associated with your business entity and has a tax ID number separate from your personal one. Once you have a business credit, changes in the history of your personal credit like late payments, won’t have an impact on your business credit.
Business credit is used solely for your business, and it is what would be used by lenders to check if you qualify for a loan.
What is a personal guarantee?
A personal guarantee can be defined as a guarantee you provide a creditor that you would carry out payment of debts accrued by your business personally if it is unable to make payment. It is the same as being cosignatory for the credit card of a person.
If your business fails to make payment in this situation, you will be left to make payments, and the creditor has the legal capacity to take over your personal properties in order to get back his/her funds.
How to build business credit fast with no personal guarantee
Although this may sound easier than it really is, but there are ways to get this done. The following are some of the ways to build your business credit without having to sign a personal guarantee.
Create a business entity
Sole proprietors do not have the qualification for loans and business credits. They are only allowed to borrow personal loans at their position. The personal loans can be utilized for personal and business purposes. To get business loans, one has to separate his or her personal finances from business finances, which means that the individual would have to begin a limited liability company or a corporation.
Open a bank account for your business
A business is required to have a bank reference if it has any plans of building credit. The bank account should be over two years old before applying for a loan. It is recommended that the bank account should be opened at the initial stage of the business. The bank account would show the daily cash flow of the business, and that would be certain of enhancing the debt level of the business.
Get a listing with business credit bureaus
Business credit bureaus have their credit scores. They provide businesses with a diverse credit file number that is utilized for rating the credit profile of the business. The number is utilized by lenders to decide if the business is creditworthy.
A majority of the lending companies would go through the credit report of a business during the process of loan application. Businesses should place focus on building a great score while they observe their businesses using agencies.
Create a business credit history
Similar to personal credit scores, as vendors keep reporting a good history of payment, the higher the business credit will be. In most situations, a report is not given by small vendors to reporting companies, so it is essential for a business to keep a trade reference sheet that should have at least three trade references that consist of their contact information, credit limits, among others.
Pay taxes regularly
Paying taxes as at when due will have a positive impact on business credit. Businesses should carry out filing of returns at the appropriate time and ensure that the business tax is paid at the appropriate time. They should ask for advice from tax experts if they have issues with payment of taxes.
Ensure good personal credit rating is maintained
Personal credit still has an effect on the various kinds of business financing even if the business is kept separate. If the business is new or little, the creditors would always observe the shareholders personal credit.
Any of the shareholders with a credit rating that is not too solid should make effort to bring them up as lenders may utilize that in determining if a business is credit worthy.
Conform your business Corporate Identity
Businesses should ensure that the appropriate business classification codes are selected for their businesses. It should also be ensured that cooperate conformity should be completed by getting all the required business certifications, verifications and licensees.
Get a Secured Credit Card for the Business
Ensure you get a secured credit card for your business. Applying for one which is secured is not the same as having to provide a personal guarantee as this kind of card can be obtained with ease; you make use of your own funds in obtaining the card.
Ensure your business Finances are kept Organized
Keeping the financial records of the business organized and easily accessible is crucial because it gives lenders the impression that you are organized and responsible.
Ensure you have a well-written Business Plan
Before lenders would give a business a loan, they have to be certain that you are sure of what you are doing; this will matter a lot before your request for a loan is approved. On of the ideal ways to let them understand that you know what you are doing is by having a business plan that shows the steps you intend taking to be successful.
The above are certain to help build business credit fast with no personal guarantee.