How to
Start Credit as a Business
In deciding how to start credit for your
business, accept the fact that every single bit of credit that you get
initially will be personally guaranteed by you.
- The bank will demand a personal
guarantee;
- Your major suppliers will demand a
personal guarantee;
- Your landlord will demand a personal
guarantee.
It doesn't matter whether you are an
individual or a corporation, in the beginning a personal guarantee is how to
start business credit growing.
So why do they call it "business
credit"? And why even bother incorporating? Well, those are
great questions.
Being a corporation will help you down the
road a ways, after you have built up a track record. But in the
beginning, you will guarantee everything. Don't believe what
incorporation companies tell you -- you WILL guarantee everything at first.
Most importantly, remember that yours is a
new business. Put yourself in the banker's shoes. Just how much
money would you lend to a business that had no history, no creditors, no
recommendations? Probably not very much.
Well, that's the position that lenders,
landlords and suppliers are in when they look at your company. So they
look to your personal credit history instead.
How to Start Credit With
Credit Cards
Most people assume they will look for
credit with landlords, major suppliers, and the bank, which is
true.
But entrepreneurs often overlook getting a credit
card in the company name, which is actually an excellent tactic. Many
credit card companies will report to Dun and Bradstreet and to Experian, the
two major business credit reporting agencies, so it is well worth while.
You see ads for American Express all
through this web site. I was fortunate enough to have the option of
representing several different credit card companies. I selected
American Express because (1) it's what I use, and (2) it's relatively easy
to get a credit card (or line of credit) in your company name.
(All the card companies pay me about the same commission, so that was a
non-issue.)
If you would rather go with another
company, that's fine. Just start somewhere. It's actually easier
to get cards in the beginning. After two or three years, credit card
companies wonder what's wrong with you that you don't have any credit
cards. So go for it now.
Learning how to start credit for your
company really isn't difficult. Watch your company's credit as you
watch your personal credit. For instance, it does make a difference
if you pay immediately, rather than in 60 or 90 days.
There are no magic formulas on how to start
credit for your company. Basically, it is just good common sense.
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