You just started your own business, and you need funding. Traditional sources of financing are out of the question because of your bad credit history; this article will show you alternative ways to get funding.
Business Credit vs. Personal credit
Your personal credit history begins with your first credit card or the loan you took out to pay for college. In the United States, your credit or FICO score is linked to your social security number. This score reflects your personal credit history. When you apply for a loan, a bank will pull your credit report from three major credit bureaus, TransUnion, Equifax, and Experian. Your credit score is calculated based on how you’re using your borrowed funds and if you’re paying off your loans on time.
Other important aspects of your personal credit are how long you’ve had trade lines, how well you pay your bills, and how many inquiries you have. “A trade line is a record of activity for any type of credit extended to a borrower and reported to a credit reporting agency.” The most critical thing impacting your credit score is your debt to income ratio.
Let’s look at business credit for a minute. The main difference is that a business’s credit score is attached to the business, usually through the business’s EIN or employee identification number. This can be obtained on the IRS website at no charge. There are three credit bureaus that your business credit will be reported to, Equifax business, Experian business, and Dun and Bradstreet. Dun and Bradstreet is a reporting agency for businesses only. You can create a profile with Dun and Bradstreet for free. There are three categories that factor into a business’s credit score.
- Credit history – payments, outstanding balance, etc.
- Demographics – details about your business and industry
- Public records – bankruptcy, legal issues, foreclosures
Setting Up Your Business Legally
You may want to launch your startup as a corporation to protect your personal assets and create your business as a separate entity from yourself. You will need to register your business with the state as an LLC, an S Corp, or a C Corp. You need to decide which of these will be the best fit for your business structure. Additionally, you should set up a professional website, phone number, and email for your business. Lenders will be looking for those to find out what your company is about and as a means to contact you.
Business Checking Accounts
You should open a business checking account, even if you have bad personal credit. A business checking account is essential when looking for funding for your business. After getting a checking account, you may want to sign up to get your Dun and Bradstreet number. Dun and Bradstreet will then mail you a code so that you can complete the setup process for your business profile.
Your Dun’s number will let you get a business credit score from the Dun and Bradstreet Corporation without spending any of your own money. With a Dun and Bradstreet number, you can start building business credit and increase your borrowing power. You will be able to attain vendor credit no matter the state of your personal credit.
Obtain Vendor Credit
Companies like Uline, Grainger, and Quill are essential to start with as vendor credit. These companies allow you to create business profiles that offer net 30, net 60, or net 90, meaning you will not have to pay them for 30, 60, or even 90 days.
Store Credit Access
If you don’t have a business credit history, you can aim to build one by working with vendors who report your transactions to Dun and Bradstreet. Once you have established a good credit history through vendor credit, you will then obtain store credit. You can get store credit from places like Walmart, Costco, and Dell, to name a few. You will also gain access to gasoline companies like Chevron and Shell. You can get credit cards in your business’s name without the issuers checking your personal credit history because you have established credit through your business credit file with Dun and Bradstreet.
Even if you have poor credit, there is no limit to how much business financing you can get from these companies if you are consistent with your payments and establish a good payment history with them. If you’re a new startup or even someone established for a while but never took the steps you needed to create business credit, it is possible. Take the time to learn the techniques, and you too can get the financing you need for your startup.
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