CEO at Novae, helping business owners establish business credit scores then leveraging the scores to access cash and credit.
Finances are the biggest obstacle to business success. Creating your initial infrastructure, training your team and building brand recognition cost money, and all of these things must be done before your business can become profitable.
That’s why it’s crucial that any startup business owner has a personal credit score of 700 or above and has a knowledge of business loans. If you lack either of those things, don’t panic. We’ll discuss some ways to fix that below.
There are five resources I recommend for business owners, especially startups, who are in need of funding now so that they can profit later. Money for your business is out there; you just need to know where to look.
1. Personal Credit Score
Unfortunately, many people’s credit scores suffer at some point or another. A financial disaster might leave you in a tough situation, or maybe you were simply never taught how to build good credit.
The good news is that there are many little-known tips for building good credit that can help you build your credit score fast. Did you know, for example, that you can call a creditor and ask them to change their report to the credit bureaus as “paid as agreed” in exchange for your payments?
Such knowledge is vital to procuring the best deals and financing possible, both for your business and your life. This is why I’ve dedicated much of my life to helping consumers and companies build credit and obtain financing in the face of common challenges.
If your credit score is below 700, it’s a good investment to spend some time researching ways to build your credit before you make your next big move. The better your score, the more financing available to your business and the less interest you can expect to pay.
2. Personal Term Loans
Personal term loans are available to anyone. In this loan type, a lump sum is loaned by a bank or other institution to an individual then repaid over a period of time.
Importantly, personal term loans are “unsecured,” meaning you don’t have to offer up personal assets such as your car or house as collateral to ensure you’ll pay the loan back. Some types of loans do require these forms of collateral with contract terms that allow the banks to take your house or car if you fail to pay back the loan. Strive to qualify for unsecured loans to avoid putting your assets at risk as much as possible.
3. Personal Vs. Business Credit Cards
Did you know that your business can get its own credit score and credit cards? This can have advantages:
1. Some business credit cards offer rewards programs, such as rewards on business supplies, that personal credit cards might not.
2. Some business credit cards don’t report payment history to personal credit bureaus. This means that if your balances are high on these business credit cards, it won’t affect your personal credit score or your personal ability to qualify for homes, cars and more. Read contract terms carefully and ask the right questions before signing up for a business credit card because this varies from provider to provider.
3. Business credit cards often qualify for higher credit limits than personal credit cards. This can make them a better fit for getting your business off the ground.
4. Typically, your monthly payment is between 1-2% of your balance on business credit cards, which helps business owners better manage their cash flows.
There’s one important thing to beware of when opening a business credit card: The Consumer Financial Protection Bureau regulates what personal credit card providers are allowed to do more tightly than business credit card providers. This means that unless their contract terms specifically promise not to do so, business credit cards are allowed to:
• Charge higher late fees, and
• Change your interest rates without notice.
For that reason, be sure to read the contract terms closely and ask questions about payment history reporting, late fees and interest rates before signing for a business card.
4. Personal Line Of Credit
Just like a credit card, other types of credit lines also allow you to spend up to a certain amount of money (your credit limit) and pay it back later. These other types of credit lines can have advantages or disadvantages, depending on your needs.
Pros: Some lines of credit may not charge fees for cash advances and may allow you to withdraw the credit line’s entire value as a cash advance. This can be good for businesses with models that require cash advances.
Cons: Many types of credit lines start accruing interest immediately after the money is borrowed instead of having an interest-free grace period like most credit cards. True lines of credit also tend to have higher total credit limits than credit cards in general. Be especially wary of credit lines such as Home Equity Line of Credit. These might be marketed as an easy way to procure a high credit limit, but they can allow the lender to take your house if you can’t pay them back.
5. Business Credit Builder Program
Business credit building programs can help you create a credit history that’s tied to your business’s Employer Identification Number instead of your personal Social Security Number. This keeps your personal credit score safe if your business runs into trouble and can allow your business credit to remain unaffected if you experience a personal financial disaster. My company as well as many others offer to help new business owners build their business credit while also assisting them in procuring immediate funding for them.
Credit-building can be intimidating, and credit and loan providers can sometimes hide unfavorable terms in the fine print. But when managed properly, personal and business credit can be used to procure funding to start or save a business.
The information provided here is not investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.