So there you are; you’ve done all your research, scoped out the competition, found your marketing niche, and spent countless hours planning precisely how you’re going to open, then operate your business.
It looks like a slam-dunk, except for one tiny problem: you need a bunch of cash to turn your dream into reality. Sure, you’re willing to put in as much as you can as far as time and effort. Maybe you can hit up your rich Aunt Gertrude for a few bucks. But, you still may need additional cash to get your business up-and-running.
What to do, and where to go to do it? Starting a business cash-poor is the quickest way of having that business cash you out-right on your ear. That will make neither you, nor Aunt Gertrude, very happy. So, you put on your, I-Need-A-Business-Line-Of-Credit hat and do a little thinking. Voila! The light goes on and blinks the word “Bank”. Halleluiah! Let’s open the doors and get this business rolling!
Or not. Stopping in to see your friendly neighborhood banker for a business line of credit takes a little more than shinned shoes, and an honest, open smile. That might have cut it with Aunt Gertrude, but your Business Loan Officer will be a bit more demanding. The Business Loan Officer is going to want to have a serious discussion about your business credit profile. This will help him decide your creditworthiness as a business. And that, not incidentally, is going to bring up the question of how you create one in the first place!
First, it’s essential that you separate your personal credit from your business credit. Reason? Personal credit is for your household expenses and business credit is to start, or expand your business. Your business will need more money than your household. If you use your personal credit to fund your business you could seem overextended to the banks and could be declined for any personal household credit needs, such as a new house or car.
How do you do this? Actually it’s simple. All you need to do is incorporate your business. There are several different entities to choose from, C or S-Corporation, or LLC (Limited Liability Company). That makes your business a self-sustaining entity, and takes away any personal liability.
Next, Uncle Sam is going to require that your business have a Federal EIN, which is like the social security number for your business. Then, a separate bank account under the business’ name is required. And of course, you’ll need to comply with all local regulations regarding permits, licenses, etc. Naturally, you’ll have to get a business phone number (not a cell phone). You can use your cell phone as a secondary line but the banks will check to see if your business phone number is a land line in your business name corresponding to the physical address you have given as your business address. Now your physical address could be your home. If you do indeed work from home, that’s okay. The important thing is that all of your business information is consistent.
The last step will be establishing a business credit profile with Dun & Bradstreet and the other business credit bureaus. These are the premier credit rating company’s that all banks turn to. To do this, you’ll need to get several business vendors who’ll extend you a small amount of credit. Pay those bills promptly, and those vendors can then be used as credit references. They will be reporting your payment history so the banks can check your business credit.
Getting that first business line of credit isn’t rocket science. It just takes a little bit of work, and a lot of attention to detail.
