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How to establish business credit with bad personal credit

Published By Janet Gershen-Siegel at January 13th, 2018

Do you know how to establish business credit with bad personal credit? Acquiring credit isn’t easy. However, it’s far from impossible. Here’s how.

You know what I’m talking about. You shopped around the big banks, and then the medium-sized banks and the small ones. You tried the banks where you do business and the others recommended by your friends or business associates. But after your long search, you were not able to acquire any form of a company credit card in the absence of a personal guarantee.

There are over 500 distinct business credit cards out there but no more than fifty of them grant credit to companies without having a personal guarantee. Complicating matters, these cards are not publicized or offered to all interested prospects.

You can understand the financial institutions’ position. They don’t like risk so they attempt to minimize it by securing a business credit card. They do this by asking you, the business owner, to guarantee payments from your individual cash, in the event of business default. If worst comes to worst, and as a guarantor or co-signer you are unable to pay the debt, then your private assets will be executed. As in, your accounts, your car or truck, your house, your investments, and whatever else you may have used to guarantee that card.

But your position, obviously, is that you need this card to run your small business more effectively.

What You Can Do

The very first thing you can do, and it’s easier said than done, is to have patience, and establish creditworthiness for your small business in the same way that you have established your personal credit history. For most companies, this means paying your debts on schedule, plus keeping in business for some time, in order to build up a record of creditworthiness.

To get rid of the sticking point of a personal guarantee, you must demonstrate to the bank that your company is solid, that it can bring in steady income, it has a healthy cash flow, and your business has a flawless repayment history. If all these can be proven, it will be a lot easier to find a business credit card without a personal guarantee.

Here are measures you can take:

Step 1

Separate yourself from your small business. This means you can really help your cause by incorporating or becoming a limited liability company (LLC). This is a separate entity from the owner(s) and it means you must register for a different identification number with IRS. If your business is already an LLC you can bypass this step altogether.

Step 2

Get one or more small business credit cards with personal guarantees. The ones with high spending limits will be better for they are the only ones reported to the business credit companies. Make sure when you acquire these products, they have the personal guarantee removal feature built in. Keep your credit utilization at one third of your credit limit or less. Pay promptly each time.

Make sure to make use of these small business credit cards to make your business’s large purchases. These purchases, in combination with a low revolving debt and of course timely repayment will prove to the bank that your business can take care of its financial resources well. It will also persuasively demonstrate that the cash flow your small business yields is enough to take care of debts and more.

Make sure that your private credit history stays spotless. After a while (six months– to one year), you can submit a personal guarantee removal request for these existing business credit cards. The financial institution will perform an account review, but they might also check into your personal credit report. If the bank accepts your request then you have attained your objective. If the bank refuses, don’t lose hope; just move onto the next step.

Step 3

You can elect to make an application for third-party guaranteed lending. For instance, this can be an SBA loan, for funds. Paying off such a loan will help you develop your business credit score. You can also make an application for a company credit card from a particular vendor. These store credit cards ordinarily do not call for a personal guarantee. Chose a store where your small business makes purchases often and of course do not forget about those prompt payments! These store credit cards, together with an SBA loan will grow your PAYDEX score provided by Dun and Bradstreet. If you are not familiar with the terminology, the brief version is that PAYDEX is for businesses what FICO is for individuals. Store credit cards will provide you from the start a special perk; they will diminish your private accountability for your company debt.

Ask the financial institution again to take out the personal guarantee clause or apply for new business credit cards without any personal guarantee, once you have generated an 80 PAYDEX score under the above conditions. Your chance to acquire such credit cards will increase tremendously.

Another Way to Get a Business Credit Card without any Personal Guarantee

You can instead apply directly for those very few company credit cards without personal guarantees. For instance you can opt for Sam’s Club ® Business MasterCard ® or the Bremer Bank Visa ® Signature Business Company Card.

Each specific card of this sort asks you, the business owner, to achieve a set of conditions which differ from one product to another. For a Sam’s Club ® Business MasterCard ® you need your business to generate over $5 million in annual sales. The Bremer Bank Visa ® Signature Business Company Card is available for small businesses with yearly profit between $1 million and $10 million while other business credit cards with no personal guarantee attached demand an open Dun & Bradstreet file and other stipulations to be met. Make sure to consult the card issuer and read all of the aspects of the promotion meticulously.

A Company Credit Card without any Personal Guarantee Could be yours

With patience and in time, you can obtain a business credit card from a financial institution without a personal guarantee. All you need is what the financial institutions ask: a solid business generating steady profit, with a healthy cash flow.

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