Published By Janet Gershen-Siegel at October 3, 2017
Your business needs credit but everywhere you turn, lenders want a personal guarantee. It’s frustrating, isn’t it; to go where to establish business credit but it turns out they still want to rope your personal spending habits and assets into the mix.
Banks don’t do this to make your life harder. Rather, they do it because they know where to check a business credit score, and your company’s has been found wanting. Or maybe your business is new and you have not yet established what lenders see as a good business credit score.
You can fix this in a few steps. However, you will need to have patience as this may take a while. Fortunately, time is often on your side, particularly if you pay your bills on time.
In order to have your business get any sort of credit, your company has got to have a credit history. And the company will not have a credit history without this identification number from Dun & Bradstreet.
You can actually do this easily online yourself. Register on the Dun & Bradstreet site first. Once you have said yes to the Terms and Conditions, the next screen is their dashboard. Here you either ask for a DUNS number or look up to see if your business is already in the listings. If your small business is already in the listings, then click on your business name and make any needed changes.
Banks and other lenders want personal guarantees mainly when they don’t know your business well enough to know if you’ll pay on time. However, they know you and your spending and repayment habits. This is because you already have your own credit score. By getting a DUNS number, you’ve taken the first step to separating these two forms of credit. However, you have to do more.
One of the best ways to separate business and personal credit is to create a separate business entity. The Internal Revenue Service understands this issue well. Your first step is to get an EIN (this is your company’s identification number for tax purposes).
Apply online after figuring out your eligibility. All you need to know are the answers to two questions: is your principal business located in the United States or in U.S. Territories? And: does the person applying online have a valid Taxpayer Identification Number (SSN [Social Security Number], EIN, or ITIN [Individual Taxpayer Identification Number])? A ‘yes’ to both questions means you are eligible.
Then select the type of business entity: sole proprietorship (it’s just you); partnership (you and others, not necessarily with equal shares in the business); corporation (you own shares in the business); or limited liability corporation (LLC).
Before you can get business credit without personal guarantees, you’ve got to start with credit with personal guarantees. Head on over to your bank and establish business credit lines or cards with personal guarantees. Understand that you are personally responsible in case the business defaults or any of your company loans, credit cards, or bills go into collections. It’s your own personal cash and assets on the line if your business defaults on loans or makes late payments.
Make sure whenever you get these kinds of business credit cards, they have a personal guarantee removal feature built right into them. Don’t use more than about one third of your total available credit. Make certain to pay on time every single time.
Each card of this kind asks you, the business owner, to meet a set of conditions. However, these differ from one product to another. For a Sam’s Club® Business MasterCard® your business must generate over $5 million in annual sales. The Bremer Bank Visa® Signature Business Company Card is for businesses with annual sales of between $1 million and $10 million. Other business credit cards with no personal guarantee attached require an open Dun& Bradstreet file (aren’t you glad your small business has a DUNS number?) and for you to meet other conditions. Always be sure to check with the card issuer and read the fine print very carefully.
Pay your bills on time and don’t borrow more than your business can pay back. Consider an SBA loan if you can pay it back on a timely basis, as that will also help you to establish good enough credit that your lenders will drop the personal guarantee requirement.
As always, stay on top of your credit and it can help you. Don’t, and it’ll hurt your small business.