"You have to spend money to make money!" is a common saying. This is so true, especially when it comes to business. If you want your business to grow, you'll need a way to get money and access to cash flow, especially when things are slow.
Once upon a time, business owners had to use the things they owned personally and their own credit score to get business credit. This is a big risk because if your business fails, you could also lose your personal property. There are now ways to get business credit that don't just add to what you owe as an individual.
If you set up your business as a legal entity that is separate from you, you can apply for business loans or credit cards. When a business is just getting started, it hasn't had a chance to build up its own credit rating yet, so lenders will look at your personal credit report to figure out how risky it is to lend money to a business you own. What happens if you don't have a good credit score?
Here are some things you can do to improve your chances of getting a business credit card or other form of business funding:
Do what you can to improve your own score. Do you know what your credit score is before you look for business credit cards or other ways to get money? Is your score less than 640? If it is, you should try to raise the score before doing anything else. Usually, if you make all of your payments on time for 3 months in a row, your score will go up by 2 to 4 points. Talk to a financial advisor about ways to improve your credit score, as this will help you both personally and professionally.
Make an LLC or Corporation. When your business is set up in this way, it is automatically separate from you and not just an extension of you. If you run a business under your own name and haven't filed any official paperwork with the government or with lawyers and accountants, your business finances are the same as your personal finances.
Have a place to live. Even if you don't believe it, having a PO Box can make it hard to get a business credit card or loan. If you run your business out of your home, you might want to get a business mailbox from Mailboxes Etc or UPS. Both of these services offer a physical mailing address instead of a PO Box. Having a business phone line will also help lenders see the business in a better light and make sure the business can be reached.
If you still can't get credit cards or loans for your business on your first try, you might know someone with good credit who would be willing to co-sign an application for you. You might not be able to get a business credit application co-signed, but as an individual, you can. Get a credit card in your name and only use it for business expenses. Make sure to pay on time and keep the balance low enough to handle. Over time, you'll improve your personal credit score, which is seen as a plus for the legitimacy of the business. Eventually, you'll be able to get loans and credit cards in the name of the business.
Getting business credit cards and financing is something that every business has to do at some point. Cash flow is needed for the business to grow and get bigger. Most businesses can get a business credit card, even if the owner's personal credit isn't perfect. All it takes is some planning and preparation.
