If you have poor personal credit, it could make building business credit much more challenging. Here are some tips to strengthen your business credit.
On top to have a solid business plan and stable cash flow, a credit report plays a big role in exactly how you scale and grow your company.
Business credit is what loan providers will evaluate to establish your creditworthiness. It can figure out whether you're eligible for the loan, and it shows your financial responsibility to possible investors, vendors, and also business partners.
Developing business credit from the ground up frequently implies using personal credit as a jumping-off place. But what if you have bad personal credit? The following tips can help with building business credit when your personal credit history is less than the best.
Is business credit based on personal credit?
Even though business and personal credit are separate, company owners' personal credit scores can still have a big impact on lending institutions' decisions, specifically when you're a startup business. Small business owners with limited credit history, they might be asked to sign a personal guarantee for financing.
A personal guarantee means you accept to be personally responsible for any financial debts your business handles. That suggests if you default on a business loan or line of credit, the delinquency could appear on your personal credit history.
Your personal credit and business credit might also be intertwined if you operate your business as a sole proprietor. For financial purposes, you and the business are treated as one and the same so lending institutions may lean more greatly on your personal credit when applying for business financing.
How to build business credit with bad personal credit
Bad personal credit can make leading the way to good business credit extra challenging, but it's not impossible. Here are some tips on how to build business credit:
Establish your EIN if you haven't yet. Having an EIN means you have an alternative option for making an application for business credit. You can also use your EIN to open business checking and savings accounts.
Register with Dun & Bradstreet. D & B is one of the chief business credit reporting bureaus. To establish your business credit profile, you’ll need to apply for a free D-U-N-S number.
Apply for trade lines with your vendors. If you have a newer business, vendor trade lines can be one of the most accessible credit options, even if you have poor personal credit. Just remember to ask whether your account will be reported to the business credit bureaus.
Apply for a business credit card. A business credit card can help you begin building a credit history since account activity can be reported to the business credit bureaus. Just keep in mind that getting approved may involve a personal credit check and a personal guarantee.
Try a small working capital loan. Loans are another way to build business credit if you’re paying promptly each month. Many online business lenders offer working capital loans to business owners with poor credit. Keep in mind that you might end up with a higher interest rate.
Check your business credit reports regularly. Your business credit report may be thin if you're just starting with building credit.
Conclusion
Consider what you can do to improve your personal credit account while building a business credit history. Raising your personal score might help you get approved for much better rates and loan terms on business financing.
The best ways to improve personal credit are paying on time and also paying for your existing debt balances. And when it comes to applying for new credit, be conservative because each new inquiry can drop your personal credit history a few points.