Business credit building is both an art and a science. We'll explore the best paths to take to make building business credit a positive experience.
Money is always a major issue when planning your business opportunity.
My client's #1 money issue is, "How much do you think I’ll need?"
My answer is always, "Develop a two-year budget, then add a minimum of 20% more on the expense side and 10% less on the income side of the ledger and have 3-months of operating expenses in the bank.”
Most entrepreneurs would view this advice with suspicion.
If my client has drafted an operating budget at all, it is generally for one year and it’s what is called a ”shoestring budget.” Or, in other words, it’s wishful thinking!
This simply won’t work. This step is critical if you plan to approach “anyone” asking for investment dollars.
A business credit-building program is intentional. It essentially should be a listing of what financial “means” do you have at your disposal?
I suggest this:
Doing the above is always a useful exercise even if you do not need extra money now. It’s a useful stopgap measure in case you have greatly misjudged your income and expenses and need to borrow.
Yes, many would be business owners tend to skimp on developing a business plan. They tend to think of it as “make work” and not a useful tool. Well, they’re wrong! Such planning doesn’t need to be super duper. It can be relative easy to do.
The main benefit is, “You have done one!”
That’s the first thing your local bank (where you have your personal checking account) will look for.
I suggest you approach the bank’s loan officer initially using the prospective of:
The goal of this exercise is to begin establishing a relationship and trust. Be upfront and positive at all times.
Approaching your banker prior to committing yourself by signing a lease for space or making another financial or legal move is paramount. You don’t want to get in over your head.
Business building credit in these circumstances is risky.
Some would-be entrepreneurs, in this case, will max out their credit cards with credit card loans with terms like no interest for 1 year and 3% or 5% of the loans face value added atop the loan. The hope, of course, is to pay it back within the year or so.
I equate this to asking Payday Loans for an advance prior to you paycheck arriving. Not good.
There are non-banking companies in the business credit marketplace that will take the risk of establishing your corporate credit without the need for you to use your personal credit. Of course these services cost you money, a fair amount of money. But, they are a source for consideration. More importantly, they do not guarantee you’ll get a bank loan.
Two such services are:
I hope you found the above useful.
Thank you for visiting Business Credit Building, The Lost Art of How To Do It.