I’m a massive advocate of bootstrapping for 2 reasons: keeping 100 percent ownership of your company and preventing taking on debt. Everything I have done in the past has been bootstrapped, but after my latest pivot, I began really diving into company credit, as I understand the only way to climb at the rate I need is to leverage credit.
I’ve been together with my personal credit and understand the ins-and-outs of maintaining a high score, however, business credit is a different animal.
After noticing that a buddy of mine was talking at Stephen Liao’s private mastermind regarding credit, I took him a DM for some more info. It had been the Instagram account belonging to Liao labeled in his post that sparked the first fascination — @credit. I wished to know when Liao had any insight that may benefit me, so I asked to be linked. A quick Instagram DM intro led to a text message and we were connected.
After speaking with Liao, it was obvious he knew his stuff and had a few fantastic methods and strategies for me. It also reinforced that I want to quit letting age be a barrier of that I network with and seek out information from. In the past few months, I’ve connected with some of the most successful ecommerce entrepreneurs and societal networking marketers — all inside their early 20s.
The majority of the information and knowledge that I pulled out of Liao has been high-level and specific to my goals and strategy, but there’s some information that could help you build a strong business credit profile at the event you ever need to tap into financing. Here are five tips to help you build and acquire company credit the correct way.
1. Maintain rock-solid personal credit.
While unsecured credit which does not require a personal guarantee is quite appealing, nearly all traditional lenders will need it, especially if your business credit profile is new or thin.
Maintaining strong personal credit will permit you to secure your first two or three tradelines and it also can help get your foot in the door at banks. This is an opportunity to show banks your company is healthy and accountable, which can lead to greater credit lines and future unsecured approvals.
If your own credit needs some work, dedicate some time to improving it — it’s the quickest route to securing business credit, especially if your business is new.
2. Understand how business credit functions.
Business credit is very similar to private in some ways — and different in others. Company credit utilizes a scoring system known as PAYDEX, which is determined by a variety of factors like number of tradelines, payment history and utilization.
This scoring system was produced by Dun and Bradstreet (D&B) and is basically what FICO is about the personal side. A PAYDEX score ranges from one to 100 and requires a business to have four documented tradelines in front of a score is issued.
A PAYDEX score of 80+ is considered good. Typically, the greater the score, the more positive the terms. You will need a D-U-N-S Number before a PAYDEX score can be computed, so ask one if you aren’t already registered.
3. Build a strong relationship with your bank.
Business credit has fewer restrictions in terms of exactly what banks can perform compared to private credit. On the personal side, the banks must comply by fair lending laws and other restrictions. On the company side, relationship banking is more common.
Creating a strong relationship with your bank, and more importantly a personal banker, will take accessing company credit to new levels. Your banker will be inclined to jump through hoops if they know how your company works and who’s running the corporation.
In case you have a history with a specific bank, that will give you a small advantage and help accelerate that relationship-building procedure. In case you have a strong foundation, it’s an indication that you will also be a great client on the business side too.
4. Consider smaller banks and credit unions.
Smaller banks and credit unions tend to be more understanding and willing to sit down to review business plans. Heal these meetings with smaller banks like you would an investor if you can make them know how your business makes cash it will help secure the funds required, and in favorable conditions.
It’s also a lot simpler to create relationships with bankers at such smaller banks, than say that the Bank of America, which has less flexibility in terms of company lending guidelines. Even if your primary bank is a large national institution, it’s worth the effort to also work with a few of the small regional options.
5. Constantly monitor and establish your business credit.
I have always tracked my private credit. I pay $12.95 a month, which lets me pull a fresh report every 30 days. I get alarms in real-time related to action on my credit reports. Over time, it has taught me how credit works — and how things like usage and average-age-of-accounts all come in to play.
I didn’t understand there was a comparable product available on the business side before Liao introduced me to Nav, which is the same sort of merchandise I have been utilizing for decades, just created for credit. It also features an alternative for private credit, but I’ve been using it for PAYDEX and Experian Business monitoring, as I enjoy the private credit support I have been using for several years.
You can sign up to get Nav for free and test it on a weekly basis if you’re aggressively building your business profile. Additionally, it is a good idea to frequently check it just to be certain that there aren’t any inaccuracies reporting.