The Facts About Business Credit

Business credit essentially works the same way as personal credit. While many small businesses rely on the personal credit of the business owners at the beginning, establishing separate business credit is beneficial for both the company and the owner.

Keeping personal credit out of the business protects both the owner and the company if one of them runs into money problems. Creditors are also more likely to view a company with its own credit as a stronger business investment. Besides, business credit is scored differently personal credit.

Creating Business Credit

Like other forms of credit, it takes time to build business credit. Credit reporting agencies determine your business credit score. To create a strong business credit score, make sure to borrow from businesses that report to the three main credit-reporting agencies. You should also make certain that you repay the money responsibly and on time. If you are unsure whether or not a company reports your activity, you may report the information to them yourself.

Keeping a business afloat may require commercial credit. However, obtaining commercial credit is a bit more complicated than consumer credit. The first step to creating commercial credit is choosing the type of loan. The different types of business loans include Short-term loans, Intermediate-term loans, Long-term loans and lines of credit.

Short-term loans are the most common and are usually paid back within a year. Intermediate-term loans are useful for startup money or expanding a business. The loans are typically paid back within one to three years. Long-term loans are usually pain in monthly installments and take from three to fives years to complete. A line of credit allows the borrower to borrow money more than once.

Applying for Business Credit

Business credit has to be customized for each particular institution. Therefore, the process is more complex than obtaining other types of loans. It requires much more paperwork to complete the application process. A detailed business plan is essential for the process. It is necessary to provide collateral as well as a detailed plan for repayment.

Lenders may demand a personal guarantee from the business owner or a cosigner. It is also possible to have the U.S. Small Business Administration guarantee the loan or some other government agency.

There are options available to help you with your business credit application. Find a support group to help review the paperwork and requirements with you before meeting with the lenders. The U.S. Small Business Administration sponsors some organizations such as the Service Corps of Retired Executives (SCORE) for the purpose of guiding business owners through this complicated process.

These organizations often have accountants and counselors to help you discover what you need to ask for before your meeting and how to go about asking for it. Counselors will help review the paperwork with you and prepare you for any questions or contingencies along the way. Take the opportunity to fine tune your business plan and discuss repayment options. Experienced accountants may show you ways to save money and reduce the amount of your loan while they find helpful repayment options.

Loans

Once you have everything prepared, meet with the lender. This can be a learning experience because some lenders will help guide applicants through the process of obtaining business credit. The decision to grant loans is typically made within 30 days of the application. Although, the type of business you have will influence the time frame. Business loans are not easy to get because they are so high risk. However, do not be discouraged if you are denied a loan. Use the opportunity to discover your weak areas and make the necessary improvements to obtain a loan at a later date.

You have the right to know why you are denied a loan. Request that a reason be given to you in writing within 60 days of the denial. Not every lender informs applicants of their right to know the exact reasons that they are denied. The records do not have to be kept longer than 60 days if you do not make the request. You can even ask them to hold your records for up to a year. You may be able to find and correct a mistake on your financial history by requesting your records or, at the very least, learn what you need to improve for the next application.

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