5 Steps to Establishing Business Credit with Bad Personal Credit

Starting your own business requires that you have an adequate amount of start-up capital, and creditors need the assurance that you are worth the risk. However, when you have bad personal credit, this may be easier said than done. In fact, commercial lenders and banks approve less than 10 percent of loan requests from small businesses. Having bad personal credit can be a major block to entrepreneurs who are trying to make it in the world of small businesses. The good news is that just because you have bad personal credit does not mean that your company cannot succeed. In fact, it could help you be more careful with your spending when it comes to your new business. It is never too late to start building sound business credit while you also work to improve your personal credit. Here are five steps to improve your company credit when your personal credit is not so hot.


1.  Make Sure Your Business Appears Legitimate

Legally separate your business from yourself to protect your personal assets. By forming a limited liability company or corporation, you can disentangle and separate your personal from business debts. It is also recommended that you get an EIN, which is the equivalent of a Social Security Number for your company, from the IRS, as well as a DUNS business credit profile from Dun & Bradstreet. Additionally, even if your business is online, you should establish a phone line and physical address for it, and have a professional business plan set and ready to go.


2.  Take Control of Your Personal Credit

Having the right business model will not solve your credit problem, especially if you need a bigger loan. As a company owner with bad credit, you must do everything in your power to increase your personal credit history so that you can avoid high insurance and interest as much as possible. If this means consolidating a few debts and working to pay them off than so be it.


3.  Utilize Trade Financing

When you are first working to establish your business credit with a not-so-hot personal credit history, one means of obtaining credit is to do so through business-to-business lending. This is also known as trade financing. Trade credit is typically a short-term financing option that has between a 15 to 30-day repayment term. The benefit of using trade financing is that it allows you to establish a good payment record with your suppliers while you keep your cash flow.


4.  Obtain a Secured Business Credit Car or Fleet Card

Another type of credit that you can obtain to increase both your business credit and personal credit is a credit card. However, if your personal credit score is not up to par, it may be difficult for you to obtain a revolving line of credit. Instead, you can look into receiving a secured business card that requires a $500 security deposit. This will aid in increasing your credit score substantially so that you obtain more preferred lines of credit in the future. You may also look into getting a secured fleet card that only requires a small $300 deposit to use.


5.  Take Advantage of Revenue Based Financing

You can also look into an alternative financing program such as one that is revenue-based. This type of program will allow business owners who even have as low as a 550 credit score range secure financing. Instead of credit scores, this kind of funding looks at business bank deposits. Keep in mind that to properly develop a creditworthy business, it is crucial that you implement the right mix of credit types such as revolving credit, short-term funding, leasing, etc.



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