Trying to build good business credit can be daunting when you have bad personal credit, but it is not impossible. In fact, there are several ways you can develop the creditworthiness of your business to open up more financing opportunities. The following list will help you create a plan to improve your personal credit and build business credit at the same time.
- Improve Personal Credit
Building business credit begins with improving your personal credit. Business owners are held to a higher standard than the average consumer when it comes to personal credit scores. Most banks will not work with a business owner with a FICO score below 640. Others will turn you away if that score is below 680 (including the U.S. Small Business Administration). Start by regularly checking your free personal credit reports from the three credit reporting agencies. If you find any inaccuracies, make sure you dispute them.
- Create a Legitimate Business
It’s important to legally separate yourself from your business to protect your personal assets. Forming a corporation or limited liability company will disentangle your personal debts from business debts. First, you will need to obtain an employer identification number (EIN) from the IRS. Second, establish a physical address and a separate phone line for your business. Third, set up a separate business bank account and prepare a professional business plan. Finally, make sure you keep thorough financial recordsfrom the very start (e.g. income and balance sheets and tax return documents).
- Secured Business Credit Card
With bad credit, it might be difficult to obtain revolving credit via a business credit card. However, it might be possible to obtain a secured business credit card. Keep in mind that you will likely be required to provide a small security deposit of $300. Some business owners opt for this financing solution when banks refuse to offer their services. Establishing a payment history will help you improve your credit score.
- Alternative Financing Programs.
It is possible to secure a small business cash advance withbad credit. Alternative lenders like First American Merchant specialize in working with businesses traditional lenders shy away from; this includes those with bad credit or insufficient credit history. In fact, FAM specifically offers a bad credit merchant account that provides businesses with flexible business funding options and safe payment processing, regardless of bad credit, bankruptcy, tax liens or the TMF list. Even merchants with a credit score of 500 are approved. Approval is based off business performance, rather than credit score and financials. Over time, this merchant account also allows you to rebuild your personal credit score.
All in all, the above tips will help you begin building business credit, regardless of personal credit challenges. It is possible to restore and build credit simultaneously. Ultimately, the goal is to improve you and your business’ position so you can take advantage of opportunities that arise in the future.