If they were asked what prevented them from putting their business ideas into practice, most people would probably say they don’t have enough capital to do it, or they don’t want to risk the money they have. The only solution, in that case – and the safest solution for you – is to obtain credit for your business.
If you have a good credit score, you have a higher chance to be granted a loan. One thing you should keep in mind is that, while some credit reporting agencies calculate the FICO score by taking into account the risk of the business as well as your personal credit, it is better to keep the two separate. There are fundamental differences between building business credit and building personal credit, not to mention that your legal protection is also different in the two cases.
Building business credit is not magic, you just need to follow a few steps. The following outline will help you understand these steps.
The first thing you can do is to establish a good business structure and to make sure you can persuade the business credit bureau regarding the stability of your business. In addition to obtaining the necessary licenses, you should set up a corporate structure and create a business credit profile. The latter will enable you to build business credit without involving your personal credit. There are many advantages to this – among others, it means more cash for your business and less personal liability, as well as a means to facilitate obtaining future loans.
The next step is to contact a company that will report your credit history to such agencies as Dunn and Bradstreet and Experian or other major credit reporting agencies. The better your income potential, the higher your FICO score will be. Of course, the chances that you’ll equal the score of large stable companies from the start are slim, but your credit score can improve over time.
You will also need to assess your compliance with the requirements of the lender and credit bureau. You should find a company that doesn’t request personal guarantees for issuing credit to a startup. The first steps are always the hardest, but once you have good references from a few vendors with whom you have done transactions on credit, it will be easier to build a good credit profile with the credit reporting agencies.
You should try to become informed about the possibilities you have. There are loans or even government grants that you can take advantage of, as well as non-profit or government organizations that will assist you in the process of building business credit. You can even come across retired businesspeople who will volunteer to provide professional advice. Eager as you may be to get your business started, these initial preparations will prove very useful in the long run.