Business Financing

photo credit: norhendraruslan

Most business owners are told by bankers and other “financial advisors” that they will have to qualify for their business credit line based on their personal credit score and that they will have to personally guarantee any credit extended to their business, especially if it is a new business.

That is not true.

Understand that there are three business credit bureaus just as there are three main personal credit bureaus. In fact, 2 of them, Experian and Equifax are the same ones who handle personal credit. But the third is actually the most important, Dun and Bradstreet.

When you apply for a loan, lease, mortgage or credit terms, lenders and suppliers will usually start by looking at your D&B “Paydex” score.

The Paydex score is like a FICO score for your business. It shows how your company has paid its bills over the past year or so.

A high Paydex’ score, 75 or more on their 1 to 100 scale, indicates that your company pays its bills on time and you will probably be approved for funding.

However, even with a high score, most creditors will require you to put your personal credit on the line.

This is dangerous and in some cases where the owner has less than stellar credit, it will doom the loan.

But even if it is approved and you personally guarantee the line, look at the mess.

Your businesses inquiries and purchases are going to be lumped onto your personal credit report, lowering your score in most cases.

You were planning on buying a house or getting a new mortgage, were you? Well probably not with that lowered credit score, especially not these days of tight credit.

Any derrogatories on your personal credit report can and will damage your new business’s financial future.

And what if the loan is approved and you personally guarantee the loan and something goes wrong with the business?

You have personally guaranteed your business’ debt. You can have 17 corporations and 10 LLC’s, your personal guarantee of the debt is a bridge between your business debt and your personal assets that your business creditors can march across with ease, right into your living room! You will go down with the ship!

To get started building your business credit the right way, you must position your business correctly in order to qualify for credit without your personal guarantee.

You must be a corporation or an LLC or Limited Liability Company. While it is possible to use an existing entity, you may not have the correct one set up for your needs, tax wise and asset protection wise.

Also, if there is any adverse information against your company on file with D&B or any of the other 2 business credit bureaus; like that cell phone contract you cancelled 3 years ago, but Verizon has reported it to D&B as a write off, it will make getting credit in the business name very difficult.

You should have a financial or business consultant sit down with you to make sure your business meets the minimum requirements to get those all important first one or two credit lines.

To start, you should make sure you have the correct entity is best for your business and financial situation, including your asset protection and tax situation. The wrong business entity can cost you thousands of dollars in unnecessary taxes, year after year.

The cost to set up the entity varies by entity type and most importantly by the state you are in. Each state has its own fees, charges and expenses.

Your consultant will help you determine the best entity for you, help you get your Federal Tax ID number, the EIN; your business plan, your business bank account and your initial business financial statements in order.

When you are ready, have your consultant locate a company that will take you by the hand and, generally in 9-12 months, guide you from start to 6 figure line of credit, secured only by your business. Make sure their results are guaranteed!

Copyright 2008 Bill Young.

Bill’s company, the Metropolitan Business Council will set up the proper entity to suit your needs, consult with you to prepare your company to get financing and will introduce you to a company that will guarantee you a 6 figure line of credit secured only by your business name in 9-12 months! Call for an appointment for a no obligation consultation concerning a line of credit for your business with no personal guarantee. 646-961-3818