Your business needs credit but everywhere you turn, lenders want a personal guarantee. It’s frustrating, isn’t it; to go where to establish business credit but it turns out they still want to rope your personal spending habits and assets into the mix. You want, and need, credit without a personal guarantee.

Lenders, creditors, and banks don’t do this to make your life harder. Rather, they do it because they know where to check a business credit score, and your company’s has been found wanting. Or maybe your business is new and you have not yet established what lenders see as a good business credit score.

You can fix this in a few steps. However, you will need to have patience as this may take a while. Fortunately, time is often on your side, particularly if you pay your bills on time.

Every Business Needs to Establish Small Business Credit Without a Personal Guarantee

Company credit is credit in a small business’s name. It doesn’t connect to an owner’s individual credit, not even when the owner is a sole proprietor and the only employee of the business.

As such, a business owner’s business and individual credit scores can be very different. Getting business credit without a personal guarantee helps to assure they stay separate.

But First, What’s a Personal Guarantee?

A personal guarantee essentially undermines your task to build business credit. Now, when you are first starting out, you may be stuck offering these, at least for a while. But you need to try to go without a personal guarantee as soon as you can. Why?

Because a personal guarantee means you are personally liable if your business goes bankrupt. And considering that some 90% of all new businesses fail within the first five years, a PG could easily devastate your savings and cost you your home. So no matter what, try to go without a personal guarantee.

And if you absolutely must provide one, be sure there’s a clause in the agreement whereby the PG will be lifted once certain conditions are met. Often, that has to do with what percentage of debt you’ve paid off.

The Advantages of Building Business Credit Without a Personal Guarantee

Because small business credit is independent from personal, it helps to secure an entrepreneur’s personal assets, in the event of legal action or business insolvency.

Also, with two separate credit scores, a business owner can get two separate cards from the same merchant. This effectively doubles purchasing power.

Another advantage is that even startup companies can do this. Visiting a bank for a business loan can be a formula for frustration. But building company credit, when done correctly, is a plan for success.

Consumer credit scores depend upon payments but also various other factors like credit usage percentages.

But for business credit, the scores truly just hinge on if a small business pays its bills on a timely basis.

The Process of Getting to Business Credit Without a Personal Guarantee

Growing small business credit is a process, and it does not happen automatically. A company must actively work to build business credit.

That being said, it can be done easily and quickly, and it is much speedier than establishing consumer credit scores.

Vendors are a big component of this process.

Undertaking the steps out of order will lead to repetitive rejections. Nobody can start at the top with small business credit. For example, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Small Business Fundability

A small business needs to be fundable to loan providers and vendors. This is one very big thing they will look to when you’re trying to go without a personal guarantee.

Due to this fact, a small business will need a professional-looking web site and email address. And it needs to have website hosting bought from a vendor such as GoDaddy.

Additionally, business telephone and fax numbers should have a listing on ListYourself.net.

Also, the company phone number should be toll-free (800 exchange or comparable).

A small business will also need a bank account dedicated solely to it, and it has to have every one of the licenses necessary for operation.

Licenses

These licenses all have to be in the exact, appropriate name of the company. And they must have the same company address and phone numbers.

So bear in mind, that this means not just state licenses, but possibly also city licenses.

Learn more here and get started toward building small business credit.

Working with the IRS

Visit the Internal Revenue Service web site and get an EIN for the small business. They’re totally free. Pick a business entity such as corporation, LLC, etc.

A company can get started as a sole proprietor. But they will more than likely want to switch to a type of corporation or an LLC.

This is in order to limit risk. And it will make best use of tax benefits.

A business entity will matter when it involves tax obligations and liability in the event of litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. Nobody else is responsible.

Sole Proprietors Take Note

If you run a company as a sole proprietor, then at least be sure to file for a DBA. This is ‘doing business as’ status.

If you do not, then your personal name is the same as the business name. Therefore, you can find yourself being personally liable for all business financial obligations.

Plus, per the Internal Revenue Service, using this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 possibility for corporations! Prevent confusion and dramatically decrease the odds of an Internal Revenue Service audit simultaneously.

Starting Off the Business Credit Reporting Process

Start at the D&B web site and obtain a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a company into their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s sites for the company. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.

In this way, Experian and Equifax will have something to report on.

Vendor Credit Tier

First you ought to establish trade lines that report. This is also known as the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can begin to acquire credit in the retail and cash credit tiers.

These varieties of accounts tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are ordinarily Net 30, versus revolving.

Therefore, if you get an approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, such as within 30 days on a Net 30 account.

Details

Net 30 accounts need to be paid in full within 30 days. 60 accounts must be paid in full within 60 days. In comparison with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.

To begin your business credit profile the right way, you need to get approval for vendor accounts that report to the business credit reporting bureaus. When that’s done, you can then use the credit.

Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Makes Sense

One of the beauties of the vendor credit tier is you can often go without a personal guarantee.

Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may need to apply more than once to these vendors. So, this is to prove you are reliable and will pay on time. Here are some stellar choices from us: https://oldcs.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are service providers which include Office Depot and Staples.

Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.

One instance is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or higher.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are companies like BP and Conoco. Use this credit to buy fuel, and to repair, and maintain vehicles. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the small business’s EIN.

One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or better and a 411 company phone listing.

Shell may claim they want a certain amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get approval.

Learn more here and get started toward building small business credit.

Cash Credit Tier

Have you been sensibly handling the credit you’ve up to this point? Then move onto the cash credit tier. These are businesses like Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or more. And they also want you to have 10 trade lines reporting on your D&B report.

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

Also, they want you to have an established business.

These are businesses such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.

Learn more here and get started toward building small business credit.

Monitor Your Business Credit

Know what is happening with your credit. Make sure it is being reported and attend to any errors as soon as possible. Get in the habit of taking a look at credit reports and digging into the particulars, and not just the scores.

We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: fastcs.wpengine.com/monitoring.

At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Equifax costs about $19.99.

Update Your Data

Update the information if there are errors or the details is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For Experian, go here: www.experian.com/small-business/business-credit-information.jsp. So for Equifax, go here: www.equifax.com/business/small-business.

Fix Your Business Credit

So, what’s all this monitoring for? It’s to challenge any errors in your records. Errors in your credit report(s) can be corrected. But the CRAs often want you to dispute in a particular way.

Get your business’s PAYDEX report at: www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: www.equifax.com/business/credit-information.

Disputes

Disputing credit report mistakes typically means you send a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always send copies and keep the originals.

Fixing credit report errors also means you specifically spell out any charges you contest. Make your dispute letter as crystal clear as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you mailed in your dispute.

Dispute your or your small business’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.

You can dispute mistakes on your or your company’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.

And D&B’s PAYDEX Customer Service contact number is here: www.dandb.com/glossary/paydex.

A Word about Building Business Credit Without a Personal Guarantee

Always use credit responsibly! Never borrow more than what you can pay back. Keep track of balances and deadlines for payments. Paying off on schedule and fully will do more to increase business credit scores than just about anything else.

Establishing small business credit pays off. Good business credit scores help a business get loans. Your loan provider knows the business can pay its debts. They understand the company is bona fide.

The business’s EIN connects to high scores and loan providers won’t feel the need to require a personal guarantee.

Takeaways for How to Get Business Credit Without a Personal Guarantee

Business credit is an asset which can help your business in years to come. Go without a personal guarantee as fast as you can. Learn more here and get started toward growing business credit.