Business Credit – How to Get it in This Economic Downturn

If you have been in business for a few years then you know that during a down economy cash flow can be a problem if you don’t have any business credit established. You must have access to cash to handle expenses to sustain your business during a business downturn.

In order for your business to get access to cash, you should start establishing business credit in order to have cash readily available when is it needed. There are many options that you should consider i.e. secured business credit lines, unsecured business credit line, a net-30 account, and business credit cards. Depending on the type of business you have and other factors one or all of these options may be a fit for your business. Allow me to summarize each option here.

Secured Line Of Credit

A secured credit line is a business loan that requires some type of collateral to be used in order to get this loan. Typically some real estate, or some business asset can be put up as collateral. A typical loan size for these types of loans are around $25,000-$100,000. These credit lines will usually require a personal guarantor with an A+ credit rating and the business must show a profit for at least two years. The loan underwriters are more likely to approve these types of loans since they have written a loan that is secured by assets. Two major benefits to the type of loan is that once your pay it off the have access to using it again when needed up to the original loan amount and you only pay on the amount that you borrowed.

Unsecured Line Of Credit

An unsecured line of credit is like a secured line of credit except that no collateral is needed to get approved. However, since no collateral is needed it can be more difficult to get approved for a loan amount above $10K-$15k. An unsecured line of credit usually does require a personal guarantor with excellent credit and the company must be able to show that it has been profitable for at least two years. Loan amounts higher than $25K are extremely difficult to qualify for especially in today’s market. Lenders across the board are slow to lend to anyone these days. Even though they got a $700 billion dollar bailout to lend money. Go Figure. However if your company can show strong financials for the past three years and the personal guarantor has strong personal financial statements it is quite possible to get a substantial unsecured line of credit. The rule of thumb is banks will typically lend a fifth of what the average net profit the company has brought in over a two to three year period.

Net-30 Accounts

A net 30 account is a credit account your business can establish with another company that supports your business. These account are general easy to set up since they are done with companies that you already have a relationship with. These types of accounts are very common with companies and their suppliers. These accounts are usually paid in full every 30 days. Net-30 accounts are also very useful in building your business credit. For example, when your net 30-account reports to Dun and Bradstreet, they will help establish your PayDex score. A PayDex is a standard way to rate business’s credit history much like Equifax rates personal credit. Over time and with good payment history you can establish a favorable score, the highest being 80, to start applying for business credit without a personal guarantor. This is a very effective way to build business credit for your business.

Business Credit Cards

Business credit cards are very similar to unsecured credit lines. Probably the only difference is that business credit cards offer a little easier access to cash than an unsecured credit line. Business credit cars usually do require personal credit and strong business financials however they can be good for access to smaller amounts of cash which can be good for petty expenses.

Any one of these options may be good for a company that is a established, has strong financials and has a personal guarantor with excellent credit. But what about those companies that are just starting out or have no personal guarantor with excellent credit. This would be probably the majority of business out there these days. Well, there is a way to can a substantial amount of cash for your business if you do not quality for conventional business lines.

Building Business Credit

The absolute best way to build credit for your business is by building your PayDex score with Dun and Bradstreet. By establishing credit in your business name you can build your business to the point where you can easily acquire business credit from various funding sources. Some immediate ways to start building your PayDex score is by establishing net- 30 accounts. Use utility bills in your company name. Apply for a Staples Credit Card. Use your cell phone service in your company name. As long as these account a reporting to Dun and Bradstreet and payments are paid on time, you can get and favorable PayDex score for your business and unlock countless funding opportunities.

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