Eight Steps to Credit for Small Business

Copyright (c) 2009 Marco Carbajo

I felt inspired to write this article after receiving so many questions about credit for small business and how you go about getting approved for cash credit lines despite the current credit crunch in the economy.

Let me be the first to tell you that businesses are still getting cash credit and business financing today but lenders have adopted new criteria and stricter guidelines that many business owners fail to recognize or adapt to.

It's more important now than ever to be pro active and informed on what is required to obtain business financing for your business. I don't recommend anyone to wait until you need financing to start because the business credit building process takes time and doesn't happen overnight.

Ever heard the phrase "Dig your well before you get thirsty?"

I'll even give you the shovel!

It's important to understand that the biggest benefit to building business credit is not just having access to cash credit. One of the greater benefits is obtaining cash credit that does not report to your personal credit profiles. However, before any business credit building begins you're business must meet certain corporate conformity guidelines in order to prevent it from getting red flagged by the business credit bureas.

When you start building business credit and progress in the process by establishing trade credit and eventually cash credit it's important for you to understand that is not the end result that you should be shooting for. After building your business credit foundation the cash credit that you obtain should only be just the beginning!

You can be assured that you will obtain as much cash credit for your current needs when you follow the right steps but whether your business obtains $50,000 or $200,000, if you continue to follow the right step-by-step process you will be able to increase your cash credit lines to double or even triple the initial amount.

Here are my 'Eight Steps to Building Ultimate Business Credit.'

1. Corporate Conformity

This is where you're business credit foundation is set up and it's critical not to take short cuts or side steps because you're ability to obtain financing can be hampered. At this stage it's vitally important to structure your business entity properly from both a tax and asset protection standpoint. In additon, both the business credit bureaus and lending institutions will verify certain information about your business that must meet specific lending guidelines. In order to achieve the best business classification ratings make sure you meet all the requirements before moving on to the next step in the business credit building process.

2. Business Plan

This is not a mandatory step, but it's necessary for your overall business success as well as a door opener for specific lenders.

3. Business Credit Profile

Once you have completed corporate conformity you will be ready to set up your business credit profile with Dun & Bradstreet as well as steps to activate your business credit profile with Corporate Experian and Business Equifax.

4. Tier 1 Trade Accounts

This is the first step where you will be setting up trade accounts for your business that are known to grant small amounts of credit to businesses that have no credit history.

*Please note -

Even if you have been in business for several years doesn't mean you have a business credit history. After setting up your business credit file there will be no payment history so you will need to start with low credit limits and gradually build it to larger amounts over time.

Another option is having your existing vendors that you have history with start reporting your payment history to the business credit bureaus. Dun & Bradstreet even offers a credit builder program for adding existing trade accounts but be sure the trade accounts you want to add fall under D&B's criteria prior to purchasing their program.

5. Tier 2 Trade Accounts

At this point you set up business trade accounts for your business that are known to grant credit to businesses that have little business credit history. Because most Tier 1 trade accounts will now be reporting on your business credit file you can now submit appllications for Tier 2. When Tier 2 vendors pull your business credit report they will see that you have some good history so they will grant additional credit in amounts higher then approved for in Tier 1.

6. Tier 3 Trade Accounts

These companies will grant credit in higher amounts than what was granted from Tier 1 and Tier 2 accounts. Those members with good personal credit history may also be ready for bank financing at this stage. Each tier builds upon the previous tier. Many of my clients who want to apply for bank financing at this stage can but at this stage they will need to use their personal credit scores for approval and will need to be in the 680+ range. If personal credit scores are below the necessary range then I suggest enrolling in a credit restoration program.

7. Tier 4 Cash Credit Accounts

Tier 4 accounts consist of vendors who will grant your business cash credit cards, typically with a Visa or MasterCard logo. Benefits to you include no personal guarantee and affect on your personal credit profiles.

8. Advanced Business Financing

At this stage of the process your business credit file is built, you have history, business scores, a bank rating; access to funding and you can continue to obtain even greater amounts of capital by following my advanced business credit building strategies. There are many different advanced strategies to obtain additional capital with and without a personal guarantee at this stage.

Remember it's not only about how much cash credit for you're business you obtain initially, it's about advancing to even greater amounts of credit capacity for your business. This is accomplished by following a proven simple step-by-step process.