I felt inspired to write this post after receiving so many questions about business credit and how you go about getting approved for cash credit lines despite the current credit crunch in the economy.
Let me be the first to tell you that businesses are still getting cash credit and business financing today but lenders have adopted new criteria and stricter guidelines that many business owners fail to recognize or adapt to.
It’s more important now than ever to be pro active and informed on what is required to obtain business financing for your business. I don’t recommend anyone to wait until you need financing to start because the business credit building process takes time and doesn’t happen overnight.
Ever heard the phrase ‘Dig your well before you get thirsty?’
I’ll even give you the shovel!
Fair enough?
Great!
It’s important to understand that the biggest benefit to building business credit is not just having access to cash credit. One of the greater benefits is obtaining cash credit that does not report to your personal credit profiles. However, before any business credit building begins you’re business must meet certain corporate conformity guidelines in order to prevent it from getting red flagged by the business credit bureas.
When you start building business credit and progress in the process by establishing trade credit and eventually cash credit it’s important for you to understand that is not the end result that you should be shooting for. After building your business credit foundation the cash credit that you obtain should only be just the beginning!
You can be assured that you will obtain as much cash credit for your current needs when you follow the right steps but whether your business obtains $50,000 or $200,000, if you continue to follow the right step-by-step process you will be able to increase your cash credit lines to double or even triple the initial amount.
‘Eight Steps to Building Ultimate Business Credit’
1. Corporate Conformity
This is where you’re business credit foundation is set up and it’s critical not to take short cuts or side steps because you’re ability to obtain financing can be hampered. At this stage it’s vitally important to structure your business entity properly from both a tax and asset protection standpoint. In additon, both the business credit bureaus and lending institutions will verify certain information about your business that must meet specific lending guidelines. In order to achieve the best business classification ratings make sure you meet all the requirements before moving on to the next step in the business credit building process.
2. Business Plan
This is not a mandatory step, but it’s necessary for your overall business success as well as a door opener for specific lenders.
3. Business Credit Profile
Once you have completed corporate conformity you will be ready to set up your business credit profile with Dun & Bradstreet as well as steps to activate your business credit profile with Corporate Experian and Business Equifax.
4. Tier 1 Trade Accounts
This is the first step where you will be setting up trade accounts for your business that are known to grant small amounts of credit to businesses that have no credit history.
*Please note -
Even if you have been in business for several years doesn’t mean you have business credit history. After setting up your business credit profile there will be no history so you will need to start small and gradually build it to larger amounts over time.
5. Tier 2 Trade Accounts
At this point you set up business trade accounts for your business that are known to grant credit to businesses that have little business credit history. Because most Tier 1 accounts will now be reporting on your business credit profile you can now apply for Tier 2. When Tier 2 vendors pull your business credit report they will see that you have some good history so they will grant additional credit in amounts higher then approved for in Tier 1.
6. Tier 3 Trade Accounts
These companies will grant credit in higher amounts than what was granted from Tier 1 and Tier 2 accounts. Those members with good personal credit history may also be ready for bank financing at this stage. Each tier builds upon the previous tier. Many of my clients who want to apply for bank financing at this stage can but at this stage they will need to use their personal credit scores for approval and will need to be in the 680+ range. If personal credit scores are below the necessary range then I suggest enrolling in a credit restoration program.
7. Tier 4 Cash Credit Accounts
Tier 4 accounts consist of vendors who will grant your business cash credit cards, typically with a Visa or MasterCard logo. Benefits to you include no personal guarantee and affect on your personal credit profiles.
8. Advanced Business Financing
At this stage of the process your business credit file is built, you have history, business scores, rating; access to funding and you can continue to obtain even larger amounts of financing by following my advanced business credit building strategies. There are many different advanced strategies to obtain additional capital with and without a personal guarantee at this stage.
Remember it’s not only about how much cash credit you obtain initially, it’s about setting up yourself for much larger amounts of capital for your business. This is accomplished by following a proven simple step-by-step process to building ‘Ultimate Business Credit!’
Remember – “People only see what they are prepared to see.” ~ Ralph Waldo Emerson
Marco Carbajo
About the Author
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 =>
July 9th, 2009 at 10:56 am
Hi Marco,
Accessing the tradelines aren’t that hard. I mean my thing is the wise ways to
use the tradelines. What’s the use of being granted $25,0000 if I don’t need all of that.
So, let’s say I was granted $250,000 cash from the bank. How could I use this? Knowing I would have to pay it back in interest. Of course, someone will say “it’s up to you.” But in truth there are wise ways on how to make the money grow which the “gurus” know and don’t say. So, what do you say to this? Most of the time I read go to the seminars and get the same “canned” talk.
And no wonder why small businesses fail so fast.
1. Lack of financing
2. Lack of investing knowlege
All the best,
Gary
July 9th, 2009 at 8:55 pm
Thank you for the comment and appreciate the question. Having access to capital for unforeseen expenses, expansion, equipment, and overhead are many of the reasons that my clients seek business credit lines.
One of my clients needed to pay over $25k to upgrade all their servers and so they tapped into their business credit lines. The $25k was paid back in less than 90 days but this is an example of how this type of access to capital serves a business.
In addition, having the access to capital allows my clients the ability to invest in income producing assets to grow their businesses assets. This includes purchasing other businesses, real estate, equipment and so on.
One of the biggest mistakes that business owners make in my opinion is not putting together the right financial team. While a business owner can be successful in building business credit the key is making sound financial decisions. This is where a financial team comes in and provides sound financial strategies including tax strategies, asset protection, entity structure, accounting, and so on.
Thank you for the question!
All the best,
Marco
October 19th, 2009 at 8:25 pm
Thank you! You often write very interesting articles. You improved my mood.
April 12th, 2010 at 4:43 pm
I’m delighted! After reading your post I can tell you are passionate about your writing. Keep up the great work and I’ll return for more! Thank you.
August 19th, 2010 at 12:15 pm
Great post. Can’t wait to read the next ones