How to Use Business Credit to Get a Loan for Your Startup

If you are a startup owner looking for financing options, you may have heard of business credit. Business credit is the amount of capital your business may be able to borrow based on its credit history and score. A higher business credit score means you are more likely to pay back your debts and qualify for better loan terms. But how do you use business credit to get a loan for your startup? And what if you don’t have a business credit score yet? In this blog post, we will answer these questions and give you some tips on how to build and improve your business credit.

What is business credit?

Business credit is not that different from personal credit. Business credit bureaus track your business’ credit usage, such as loans, lines of credit, credit cards, and trade accounts with vendors and suppliers. They then create a score based on that usage, which reflects your business’ creditworthiness. There are three main business credit bureaus that track and report on business credit: Dun & Bradstreet, Experian, and Equifax. Each bureau has its own scoring system and range, but they all use similar factors to calculate your score, such as:

1. Payment history

2. Credit utilization

3. Credit mix

4. Credit age

5. Company size

6. Industry risk

Your business credit report contains information about these factors, as well as any legal filings or judgments that may affect your credit reputation. Lenders, insurance companies, landlords, suppliers, and customers may look at your business credit report or score to make decisions about your business.

How to use business credit to get a loan

Having a good business credit score can help you get a loan for your startup in several ways:

1. It can increase your chances of approval.

Lenders will look at your business credit score as one of the criteria to evaluate your loan application. A higher score means you have a lower risk of defaulting on your loan, which makes you more attractive to lenders.

2. It can lower your interest rates and fees.

Lenders will also use your business credit score to determine the terms and conditions of your loan. A higher score means you can qualify for lower interest rates and fees, which can save you money in the long run.

3. It can give you access to more financing options.

Some lenders may require a minimum business credit score to lend to startups, especially for larger amounts or longer terms. Having a good business credit score can open up more opportunities for financing that may not be available otherwise.

To use your business credit to get a loan, you will need to provide your lender with your employer identification number (EIN), which is a business tax ID number issued by the government. Your EIN is linked to your business credit profile and allows lenders to check your business credit history and score.

How to build business credit

If you don’t have a business credit score yet, don’t worry. You can start building one by following these steps:

1. Register your business as a legal entity.

This will separate your personal and business finances and protect your personal assets from liability. You can choose from different types of legal structures, such as sole proprietorship, partnership, LLC, or corporation.

2. Get an EIN from the IRS.

This is a free and easy process that you can do online. You will need an EIN to open a business bank account, file taxes, and apply for loans.

3. Open a business bank account and a business credit card.

These will help you establish a financial history for your business and show lenders that you are serious about your venture. Make sure to use them responsibly and pay your bills on time.

4. Apply for trade accounts with vendors and suppliers.

Trade accounts are agreements that allow you to buy goods or services from vendors and suppliers on credit and pay them later. They can help you build your business credit by reporting your payment history to the credit bureaus. You can start with small purchases and increase them gradually as you build trust.

5. Monitor your business credit report and score regularly.

You can check your business credit report for free once a year from each of the three bureaus. You can also sign up for paid services that offer more frequent access and alerts. Make sure to review your report for any errors or discrepancies and dispute them if necessary.

How to improve your business credit

If you already have a business credit score but want to improve it, here are some tips:

1. Pay your bills on time or early.

Your payment history is the most important factor in your business credit score. Paying on time or early shows lenders that you are reliable and trustworthy. Aim for at least 30 days before the due date or as soon as possible.

2. Keep your credit utilization low.

Your credit utilization is the percentage of available credit that you are using at any given time. A high utilization rate indicates that you are overextended and may have trouble paying back your debts. Aim for no more than 30% of your total available credit across all accounts.

3. Diversify your credit mix.

Your credit mix is the variety of types of credit that you have, such as loans, lines of credit, credit cards, and trade accounts. Having a diverse mix shows lenders that you can handle different kinds of debt obligations.

4. Increase your credit limit or apply for new accounts.

Increasing your credit limit or applying for new accounts can boost your available credit and lower your utilization rate. However, be careful not to overdo it or apply too frequently, as this may hurt your score by generating hard inquiries or increasing your debt load.

5. Ask for referrals or testimonials from satisfied customers.

Having positive feedback from customers can enhance your reputation and credibility with lenders. You can ask them to write reviews on online platforms or provide references that you can share with potential lenders.

Conclusion

Using business credit to get a loan for your startup can be a smart way to finance your venture without relying solely on your personal finances. By building and improving your business credit score, you can increase your chances of getting approved for loans with better terms and conditions. However, keep in mind that business credit is not the only factor that lenders consider when evaluating your loan application. They may also look at other aspects of your business, such as:

1. Revenue

2. Profitability

3. Cash flow

4. Growth potential

5. Business plan

6. Industry

7. Collateral

Therefore, it’s important to have a strong overall profile that showcases the strengths and opportunities of your startup. If you need help with building or improving your business credit score, or finding the best financing options for your startup, we are here for you.

At Tolbert Consulting Group, we offer comprehensive solutions for all your business needs. We can help you with:

1. Business Credit

We can help you establish and monitor your business credit profile and score with all three bureaus.

2. Business Funding

We can help you find and apply for the best loans for your startup based on our network of over 100 lenders.

3. Business Services

We can help you with other aspects of running your startup, such as accounting, bookkeeping, payroll, tax preparation, legal advice, marketing, web design, etc. We are committed to helping you succeed in achieving your goals and dreams.