If you have ever been denied for business financing, you are not alone. More than half of small business owners who apply for financing do not get anything. The primary cause of this is personal and business credit scores. If you have not taken the time to establish strong business credit, you must start as soon as possible. Here we will discuss quick tips on how to establish business credit and get the financing you need for your small business.
Put your business on the map
You will need to establish your business as separate legal entity with your state if you have not done this step yet. This means you are incorporating, setting up an LLC or S-Corp. To find out the best one for you should discuss it with a tax advisor. After you take care of that step, you will want to apply for an Employee Identification Number (EIN) through the IRS website.
Open a business bank account
This will help you clearly separate your personal financials from your business financials. Use this account to take care of all the business expenses including paying yourself by depositing into a personal account. Most lenders want to see that you have a business bank account data to help them decide if they should finance you or not.
Get a business phone number
You can use a cell phone, VoIP, or a landline but you need to have a separate phone number for your business.
Check if you have a D-U-N-S number
Once your business is leally established, check to see if it is listed with Dun and Bradstreet. They are one of the main credit bureaus and its PAYDEX score is used in most trade credit applications. You can register for a D-U-N-S number for free if D&B does not have a file for you.
Check Experian and Equifax credit files
Experian and Equifax are other two major business credit bureaus. Lenders use use Experian and Equifax data when making decisions. You cannot manually register with Experian and Equifax to build out your profile, unlike D&B. They do it automatically by pulling information from public records and the information sent in by your business creditors and lenders. It’s similar to how your personal credit profile gets populated.
Get a line of credit with vendors or suppliers
Thinking about companies that you do business with everyday and the relationships you have already established. Ask them to extend you some credit, they will not be reluctant to do this because they want to keep you as a customer. Just be sure you verify that they send your payment history to the business credit bureaus. you will establish four or five of these types of accounts to help fill in your business credit profile.
Open a business credit card
If you have been using a personal credit card to pay for business expenses, now is the time to stop. You should open a couple business credit cards that are not tied to you personally. You will need to verify the report to the business bureaus when applying. Most business cards will include rewards, cash back programs, or travel points. You can then use this money to reinvest back into your business.
Pay bills on time
With personal credit, you have 30 days to make a payment before it dings your credit, your business credit scores can take a hit even if you are only one day late. To get a perfect D&B PAYDEX score of a 100, you need to pay your bills before the bill is due.
The Bottom Line
Personal and business credit scores are the primary reason why applications are denied. Take the time to establish a good credit score before you apply. Doing so will increase your chances of getting approved. Follow the steps above so that when you apply, you will be approved for the financing your startup business needs.