When people decide to purchase homes, cars, or college educations, they will, in most cases, seek out loans from banks. To determine eligibility for these loans, financial institutions will look at individuals’ spending history and credit reports. For small business owners who need loans, it works the same way.
It can take anywhere from a few thousand to millions of dollars to start a business. A majority of entrepreneurs won’t have that kind of cash up front, so they need to take out loans and lines of credit. However, with no business credit history, it’s not exactly easy to receive funding.
If you’re like most small business hopefuls, you’re facing a similar dilemma. Here are some ways in which you can obtain business credit and guarantee that you’ll raise the money you need to succeed.
Start with your own credit
According to Entrepreneur’s Kelly K. Spors, those looking to start a small business should have a personal credit score that is, at the minimum, in the mid-600s. Credit card balances need to stay under 30% of the total limit, and all bills must be paid on time. Before you sign on a business partner or investor with more than a 20% stake in the company, inquire about their credit history, because the banks will check that, too.
Legitimize your business
Establish your business as an LLC or a corporation with help from a CPA, says Mashable’s Nellie Akalp. Apply for an EIN, or a tax ID number, on the IRS’ website. Set up a business bank account that shows “a cash flow capable of taking on a business debt” as well as a business phone number that’s listed in the Yellow Pages. Use a credit card for your business and treat it like your personal card by keeping the balance low and paying it off consistently every month. Create a listing on a business credit bureau like Dun & Bradstreet or Experian so that you and financial institutions are able to check your score. Look at your score frequently and make sure that everything is up to date and accurate.
Have more than one financial relationship
Spors recommends that small business owners seek out loans and lines of credit from various institutions. That way, there is always a back up plan in place. While a big bank might offer convenience, a small one will be able to give you the attention you need.
Remember: When you’re starting a business, it’s all about thinking ahead. Keep your personal credit record clean and do your research before jumping in. It may seem impossible at first, but with the right knowledge and tools, you can attain the credit necessary to operate your business and ensure that it thrives.