Building Business Credit Without a Blueprint: A Recipe For Disaster
The idea of establishing and building a strong business credit profile isn't new and shouldn't be viewed as a profound concept. The most successful businesses in the world thrive on the equity in their brands and the creditworthiness built through corporate credit planning and years of sound business practices.
That said, as a small business owner, it is critical that you understand the importance of strategic planning when it comes to building a strong corporate credit profile. Did you know that less than ten percent of small businesses use business credit and most are still using personal credit to fund their growth. And of those that actually use business credit, most of them have not been given the proverbial "Keys to the business credit kingdom".
So what exactly do I mean when I say, "The Keys to the Kingdom", you ask? Let me explain.
In over thirteen years in the corporate credit arena, I've found that most people that use business credit have simply stumbled upon a few strategies that have barely moved the dial on the corporate credit meter. In other words, the large majority of entreprenuers have never tapped into the real opportunities made available by implementing a purposeful, knowledge-based approach to business credit building.
Think about it for a moment. When an archictect decides to build a home or building, hundreds of hours go into the planning and preparation of the project. In most cases, several specialist are brought in to ensure that each phase of the project meets proper standards set forth by the governing bodies (i.e. city planning and zoning). In the same way, the business credit building process is much like constructing a building. The height (or number of stories) you're able to build is primarily based on the soundness of your foundation.
Dun and Bradstreet (D&B) is the major business credit bureau that provides the standards which will determine how strong you can build your business credit profile. So let's breakdown the basic blueprint required to create a solid foundation for your business from D&B's viewpoint:
Step 1 - Make sure your business is ready to build business credit.
Step 2 - Correctly structure your business entity to maximize asset protection.
Step 3 - Understand the importance of protecting your business credit profile.
Step 4 - Set up the proper business location to build strong business credit.
Step 5 - Establish your business in the 411 Directory to increase approvals.
Step 6 - Learn the items lenders are checking to determine business credibility.
Step 7 - Properly obtain and track your business credit identity (EIN Number).
Step 8 - Verify that all agency listings on your business are “Exactly” the same.
Now that the proper foundation for your business entity (i.e. S Corp, C Corp, LLC) has been laid, the steps to building the credit profile and securing financing can take place. Although many business owners have received various amounts of credit and financing without following the steps above, many get stuck when it comes to securing larger unsecured loans and lines of credit for expansion. Others realize later that they have created a huge debt trap for themselves and their families by linking their business expenses and liabilities to their personal credit, collateral, and overall financial profile.
Bottom line, don't expose your personal credit and finances to any credit or funding vehicles without properly creating a solid foundation and strategic blueprint to build your companies business credit. Failing to take this critical first step can be a recipe for disaster, resulting in increased liability which puts your personal assets at risk in the case of litigation or default. Contact us to schedule a strategy session to learn how to properly secure funding for your business, while building a strong Business Credit Asset that will increase the valuation of your company.
About the Author Kylon J. Trower is 20+ year serial entrepreneur with a background in residential and commercial lending, business credit development and financing. Most recently, he's built a national network of financial professionals dedicated to preserving the lifeblood of our economy, the American small business sector.
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