Published By Janet Gershen-Siegel at November 5th, 2017
Don’t think you can get business loans? Think again! We found the secret, little-known way how to get business loans and get golden opportunities for your company.
Bad credit does not have to be an albatross around your business’s proverbial neck. But let’s not kid ourselves. Bad credit does make it more difficult to get a small business loan.
For a new company particularly, your small business credit will be substandard as a matter of course. This is because you just will not have the type of history and seasoning which can make your commercial credit score increase.
And, therefore, that would in turn make lenders want to lend your business funds.
Hence, lenders are not going to be too passionate about granting your business a company loan. This is because they genuinely have no clue if your business will be able to repay the loan. But you are still justifiably considering how to finance a company with poor credit. And this is completely understandable.
So here is how to get business loans.
As a result of this, banks will frequently secure a UCC blanket lien in the event that they do give your business a loan. A UCC blanket lien is a notification which is on with your credit report.
It says that a lending institution has an interest in all of your business’s assets until you repay the loan in full. For that reason, there can be unfortunate consequences if you need to default.
Plus, many of these loans will also necessitate personal guarantees.
However, if a loan does not require a personal guarantee, then your small business is generally going to be considering unsecured business loans. And those are coupled with exorbitant rates of interest.
These types of small business loans can be short term. So you must pay them back fast. Or they can be receivables financing. So that is where you are able to get a loan based upon business you anticipate to be coming in.
That is because you have ongoing statements which your own customers have not paid to you yet.
Or it can come in the form of merchant cash advances. But these all come with rates of interest which are often 40% or higher.
The primary advantage is you do not have to put up a personal guarantee or accept a UCC blanket lien. If you default on the loan, your home and other individual possessions will not be seized. And neither will your inventory.
But this also means that you regularly need to have strong revenue or a significant amount of time in business.
Generally speaking, your personal credit must be fair or better. And that’s even with no a personal guarantee requirement.
It’s all about the interest. As reported by Nerd Wallet, Kabbage can provide an unsecured business loan. Yet the APR can possibly be up to 99%!
If you think that’s usury, think again. In Ohio, the usury laws don’t apply to unsecured loans.
Another downside is that unsecured business loans often require that your small business has been in operation for a minimum of six months.
Or it will require that you have no personal bankruptcies. An alternative requirement is that your business needs to show a minimum annual profit amount. So means opening your books to your credit issuer.
But not everyone will see these as being downsides.
If you can meet any one of these conditions, then you probably won’t see this as a genuine disadvantage. But if your company is brand new, and you do not as of yet have a regular clientele and income, then that’s problematic.
Or if you have had personal bankruptcy problems, then you may be locked out of your few remaining options.
In order to improve your chances of getting any sort of business funding, it will help to build business credit. And, in point of fact, if your business credit is good, you may find you don’t need business loans! Business credit is an asset which can help your business for many years to come.
But first, how do you get there? There’s a process. Don’t worry; we know it.
Small business credit is credit in a business’s name. It doesn’t link to an owner’s individual credit, not even when the owner is a sole proprietor and the sole employee of the business. As such, a business owner’s business and consumer credit scores can be very different.
Due to the fact that corporate credit is distinct from personal, it helps to safeguard a small business owner’s personal assets, in the event of litigation or business bankruptcy. Also, with two separate credit scores, an entrepreneur can get two different cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even startup companies can do this. Visiting a bank for a business loan can be a formula for frustration. But building business credit, when done right, is a plan for success.
Individual credit scores depend upon payments but also other factors like credit use percentages. But for small business credit, the scores really just depend on whether a business pays its invoices punctually.
Building corporate credit is a process, and it does not occur without effort. A company must proactively work to develop small business credit. Nonetheless, it can be done readily and quickly, and it is much more efficient than establishing consumer credit scores.
Vendors are a big aspect of this process.
Performing the steps out of order will result in repetitive rejections. No one can start at the top with company credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A corporation has to be reliable to credit issuers and merchants. Therefore, a business will need a professional-looking web site and e-mail address, with website hosting from a merchant like GoDaddy.
And business phone and fax numbers need to have a listing on 411.com.
Also the business phone number should be toll-free (800 exchange or similar).
A small business will also need a bank account dedicated purely to it, and it must have all of the licenses essential for running. These licenses all have to be in the particular, accurate name of the company, with the same small business address and phone numbers.
So note that this means not just state licenses, but possibly also city licenses.
Visit the IRS web site and get an EIN for the company. They’re free of charge. Pick a business entity like corporation, LLC, etc.
A company can get started as a sole proprietor. But they will most likely want to switch to a kind of corporation or partnership to lessen risk and optimize tax benefits.
A business entity will matter when it involves tax obligations and liability in case of a lawsuit. A sole proprietorship means the owner is it when it comes to liability and taxes. Nobody else is responsible.
If you run a corporation as a sole proprietor, then at the very least be sure to file for a DBA (‘doing business as’) status.
If you do not, then your personal name is the same as the business name. As a result, you can end up being directly responsible for all company debts.
And also, according to the Internal Revenue Service, with this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and considerably lower the odds of an Internal Revenue Service audit as well.
Begin at the D&B website and get a totally free DUNS number. A DUNS number is how D&B gets a corporation into their system, to generate a PAYDEX score. If there is no DUNS number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s sites for the business. You can do this at https://www.creditsuite.com/reports/. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
In this way, Experian and Equifax will have something to report on.
First you should establish trade lines that report. This is also referred to as vendor accounts. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can begin acquiring revolving store and cash credit.
These varieties of accounts tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first of all, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are often Net 30, instead of revolving.
So if you get an approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts must be paid in full within 60 days. Compared to with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.
To kick off your business credit profile the proper way, you need to get approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then make use of the credit.
Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
But you may need to apply more than once to these vendors, and you may have to buy some things you don’t need to have, to prove you are dependable and will pay timely. Consider donating nonessential items to charitable organizations.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to revolving store credit. These are service providers such as Office Depot and Staples. These companies are likelier to have things you need.
Use the business’s EIN on these credit applications.
One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a DUNS and a PAYDEX score of 78 or higher.
Are there 8 to 10 accounts reporting? Then move to fleet credit. These are companies like BP and Conoco. Use this credit to buy, repair, and maintain vehicles. Make certain to apply using the corporation’s EIN.
Have you been responsibly handling the credit you’ve up to this point? Then move to cash credit. These are businesses like Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
These are companies such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are normally MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Know what is happening with your credit. Make sure it is being reported and address any mistakes ASAP. Get in the practice of checking credit reports and digging into the specifics, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. See: https://www.creditsuite.com/business-credit-monitoring. Update the information if there are mistakes or the relevant information is incomplete.
So, what’s all this monitoring for? It’s to contest any errors in your records. Errors in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Disputing credit report mistakes typically means you send a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always mail copies and keep the originals.
Disputing credit report inaccuracies also means you precisely itemize any charges you challenge. Make your dispute letter as understandable as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Always use credit sensibly! Don’t borrow more than what you can pay off. Keep an eye on balances and deadlines for payments. Paying punctually and fully will do more to boost business credit scores than almost anything else.
Growing company credit pays. Great business credit scores help a company get loans. Your lender knows the business can pay its debts. They understand the business is for real.
The business’s EIN links to high scores and loan providers won’t feel the need to demand a personal guarantee.
For all of these alternatives, you will typically have a better interest rate, if your credit score is better than poor. And you will more than likely have more options. So you can shop around and compare plans.
If your business can hold on until your credit– either company or personal or both– grows, then your alternatives will dramatically improve. Find out how to get business loans, and why so many companies are using business credit to improve their chances of getting traditional bank loans.