How to Get Credit As a New Business
Starting and running a new business through its initial six to 12 months, when sales are typically insufficient to fund its operations, is almost entirely dependent on its ability to borrow money through business loans. Business credit, however, is not only a matter of having the money to purchase products and pay employees, rent and the utilities---it's also paramount for being able to engage in business transactions with suppliers and service providers who do business on billing cycles. Many enterprises will refuse to engage in business with companies that have poor credit.
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Instructions
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Organize your business. Lenders will typically only consider loans to businesses that have established professional credentials. These include a legal business structure other than a sole proprietorship, which will generally only qualify for personal loans. Limited liability companies (LLCs), partnerships and corporations are the predominant business structures that banks will lend money to. Local, state and federal tax credentials must also be secured, as must licenses and any mandatory insurance policies particular to the business. Finally, a business checking account must be established at a local commercial bank.
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Write a comprehensive business plan. Lenders will want to judge a business by its ability to repay a loan. A new business without a proven track record of generating profit to pay its bills can best show its capacity to do so by explaining its business with a written business plan. Along with projections of future sales and profit margins, a business must also show capability of prospering in its particular competitive environment.
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Write a personal financial statement. A lender will want to know how much of the owner's personal assets will be able to serve as collateral for a business loan. Until a pattern of timely loan repayments can be established by the new small business, the owner's management of personal finances will be considered in the granting of a business loan.
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Contact the Small Business Administration (SBA). Although the SBA does not directly make loans, it will guarantee them through lenders who make them to qualifying small businesses. The four loans that a new business can secure through the SBA are: the 7(a) Loan Program, which can be used to finance many business purposes; the CDC/504 Loan Program, which is used principally to acquire fixed assets for expansion and modernization; the Microloan Program, which provides up to $35,000 in short-term capital to procure inventory and supplies and the Disaster Assistance Loan Program, which provides money for disaster repairs.
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Apply for a D-U-N-S Number with Dun & Bradstreet. This nine-digit number is the backbone of a small business' credit history. Vendors who conduct business on a credit basis may delay or even cancel shipments of supplies and equipment to companies that don't have a D-U-N-S Number and the associated business credit information.
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Apply for business credit with companies that readily grant lines of credit to new businesses without requiring the owner's personal payment guarantee. These companies regularly update credit profiles of businesses that they deal with and thus help establish good business credit for new businesses that pay their bills on time.
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Tips & Warnings
Establishing good business credit takes patience. Payments have to be made as agreed, and loan stipulations must be met. Failing to closely monitor a company's financial dealings will result in negative remarks being entered into that company's credit account. Too many of such unfavorable remarks will adversely affect the business' ability to borrow needed funds for inventory, expansion or any variety of important business expenses that could potentially threaten the continuation of the business.
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