You must have probably heard: “You have to spend money to make money!” This can’t be more true, especially in business. If you want to grow your business, you need source of funds and access to cash – especially when things move slowly.
At one time, owners of businesses had to get business credit against the things that they owned personally and based on their personal credit score. This is a major liability because if your business doesn’t make it, you could lose your personal possessions, too! Fortunately, there are now ways to obtain business credit that is not just an extension of what you owe personally
If you set the business up as an official entity- separate from yourself, you can apply for a range of business funding, including loans or credit cards. When a business is just starting out, it hasn’t had the opportunity to establish it’s own credit rating yet and so lenders will have to use your personal credit report to determine the level of risk in lending to a business you own. What happens if your personal credit score is not so good?
You can take some steps to increase your chances of getting a credit card company (or any other form of business financing) as follows:
Take steps to add a personal score. Prior to looking for business credit cards or other sources of financial support, do you know what your score is? Is it a credit score below 640? If it is, you should try to increase your score first. Often, making all of your payments on time for 3 consecutive months will pull your score up 2 to 4 points. Get the help of your financial advisor for some ways of increasing your credit score as it will only serve to help you personally as well as in business.
Create an LLC or Corporation. This type of business structure automatically means the business is separate, and not just an extension of you. If you are running a business under your name, and have not filed any official paperwork with the government or with lawyers and accountants- your business finances are no different than your personal finances.
Have a physical address. Believe it or not, using a PO Box can hamper your chances to get a business credit card or loan! If you operate out of your home, you might consider getting a business mailbox from Mailboxes Etc, or UPS, as both offer a physical mailing address rather than a PO Box. Having a business phone line also will increase the way the business is looked at by lenders, and ensures the business is reachable.
If you are still not able to obtain business credit cards or financing on your first try, perhaps you know someone with a strong credit rating who would be keen to co-sign an application for you. You may not be able to have a business application for credit co-signed, but you can as an individual. Get a credit card in your name and then use it only for the business. Be certain to make the payments on time, and keep the balance controllable. Over time, you’ll build up your personal credit score, which is seen as a boost for the business validity- and eventually you’ll be able to obtain funding and credit cards under the business name.
Getting business credit cards and financing is a requirement that all businesses will face from time to time. There is a need for cash flow in order to grow and increase the business. With some careful planning and preparation, most businesses will be approved for a business credit card even if the owner has personal credit that is slightly less-than-perfect.
