Virtually every business professional confirms that one of the very essential things an entrepreneur can perform is to maintain their personal
credit separated from their business credit. However, when nearly every business loan or credit line application requires a personal guarantee from the applicant, how can that become possible?
The only method to genuinely maintain your personal credit out of your business credit affairs is to build your business’s credit without having to be pressured to personally guarantee the loans.
Whilst this might seem easier in theory, you will find methods to get it done. Here are 15 ways you can help reduce the probabilities that you'll need to sign a personal guarantee on your next business credit application.
#1 – Integrate Your Business
Integrating your business and obtaining a federal tax ID number can help identify your business as a separate entity.
#2 — Conform Your Corporate Identity
You should also ensure you pick the best business category codes for your business, and complete your business’s corporate conformity by acquiring all essential business licenses, verifications, and certifications, as well as registering its 411 listings.
#3 – Build a Credit Profile With Dun & Bradstreet Reliability Corp.
D&B has a number of possibilities for small-business owners to have their D-U-N-S® number so they can start building their corporate credit. As soon as your profile is set up, you can begin reporting your timely payments (in the event that your vendors do not) and trade referrals, so they are incorporated on your profile.
#4 – Apply for Credit With Your Suppliers
One of the simplest and most efficient methods for building your business credit is to setup lines of credit with your existing suppliers. If you're on good conditions with them, then most of them should comply. In doing this, you should also be sure that the vendors report to the credit bureaus, or you might have to report your transactions by yourself.
#5 – Develop a Solid Payment History
Building good credit indicates producing all your payments on time over an extended period of time. Two or three months’ worth of regular payments will not be enough; you need to do it each and every month.
#6 – Pay out Your Bills Earlier
Paying out your bills between 10 and 20 days prior to the scheduled pay-by date will result in your business’s PAYDEX® score rising quicker.
#7 – Set Up a Bank Account for Your Business
Setting up a bank account especially for your business will help keep your business and personal finances separate, and this is very important in the eyes of lenders.
#8 – Obtain a Secured Credit Card for the Business
Applying for a secured credit card is different than having to provide a personal guarantee; this type of card is easily obtained, because you are essentially using your own money to secure the card.
#9 – Keep Your Business Finances Organized
Lenders want to know that you are responsible and organized, so keeping your financial records in top shape is important.
#10 – Write and Keep a Business Plan
#11 – Keep Your Personal Credit in Good Shape
Just because you are trying to build your business credit is no reason to let your personal credit go downhill. In order to obtain financing without a personal guarantee, your personal credit rating needs to be at least 680 or above, and yes, the lender will check your credit.
#12 – Apply for a Business Line of Credit
If you have been successful in obtaining and maintaining a secured credit card and vendor lines of credit, then the next step is to apply for a business line of credit through your bank. You should have a history with your bank by now and have built a relationship with the loan manager, both of which make obtaining a small-business line of credit easier.
#13 – Build a Diverse Credit Profile
In order for a business credit profile to be as strong as possible, it should include a diversity of credit resources, including revolving lines of credit, trade credit, leases, and loans.
#14 – Request Credit Limit Increases When Ready
After six months of paying regularly, you can ask your vendors to increase your credit limits. This will increase your credit to debt ratio, and help improve your credit score.
#15 – Monitor Your Credit Regularly
Keep track of your credit-building progress by checking your credit score regularly. This is important for ensuring that your profile is accurately reported.