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Business Credit

5 Tips for Securing the Business Credit You Need to Start and Scale Your Business

Want to bootstrap your business? You are going to need a solid financial foundation.
5 Tips for Securing the Business Credit You Need to Start and Scale Your Business
Image credit: Jirapong Manustrong | Getty Images
VIP Contributor
Founder, Uber Brands
6 min read
Opinions expressed by Entrepreneur contributors are their own.

I'm a huge advocate of bootstrapping for two reasons: maintaining 100 percent ownership of your business and avoiding taking on debt. Everything I have done in the past has been bootstrapped, but after my latest pivot, I began really diving into business credit, as I know the only way to scale at the rate I desire is to leverage credit.

I've always been on top of my personal credit and understand the ins-and-outs of maintaining a high score, but business credit is a different animal.

After noticing that a friend of mine was speaking at Stephen Liao's private mastermind about credit, I shot him a DM for some more info. It was the Instagram account belonging to Liao tagged in his post that sparked the initial curiosity -- @credit. I wanted to know if Liao had some insight that could benefit me, so I asked to be connected. A quick Instagram DM intro led to a text message and we were connected.

After speaking with Liao, it was clear he knew his stuff and had some great tips and strategies for me. It also reinforced that I need to stop letting age be a barrier of who I network with and seek out advice from. In the past few months, I have connected with some of the most successful ecommerce entrepreneurs and social media marketers -- all in their early 20s.

Most of the information and knowledge I pulled from Liao has been high-level and specific to my goals and strategy, but there is some information that can help you build a strong business credit profile in the event that you ever need to tap into funding. Here are five tips to help you build and acquire business credit the correct way.

Related: 10 Pieces of Financial Advice I Wish I Knew in My 20s

1. Maintain rock-solid personal credit.

While unsecured credit that doesn't require a personal guarantee is very appealing, the majority of traditional lenders will require it, especially if your business credit profile is new or thin.

Maintaining solid personal credit will allow you to secure your first few tradelines and it also helps get your foot in the door at banks. This is an opportunity to show banks that your business is healthy and responsible, which can lead to increased credit lines and future unsecured approvals.

If your personal credit needs some work, dedicate some time to improving it -- it's the fastest route to securing business credit, especially if your business is new.

2. Understand how business credit works.

Business credit is similar to personal in some ways -- and different in others. Business credit uses a scoring system called PAYDEX, which is determined by a variety of factors such as number of tradelines, payment history and usage.

This scoring system was created by Dun and Bradstreet (D&B) and is essentially what FICO is on the personal side. A PAYDEX score ranges from one to 100 and requires a business to have four reported tradelines before a score is issued.

A PAYDEX score of 80+ is considered good. Typically, the higher the score, the more favorable the terms. You will need a D-U-N-S Number before a PAYDEX score can be calculated, so request one if you aren't already registered.

Related: How to Invest $1,000 and Grow It Into $1 Million

3. Build a strong relationship with your bank.

Business credit has fewer restrictions in terms of what banks can do compared to personal credit. On the personal side, the banks must abide by fair lending laws and other restrictions. Whereas, on the business side, relationship banking is more common.

Developing a strong relationship with your bank, and more importantly a personal banker, will take accessing business credit to new levels. Your banker will be willing to jump through hoops if they understand how your business works and who is running the company.

If you have a personal history with a particular bank, that will give you a slight advantage and help speed up that relationship-building process. If you have a strong history, it's an indication that you will also be a great client on the business side as well.

4. Look at smaller banks and credit unions.

Smaller banks and credit unions tend to be more understanding and willing to sit down to review business plans. Treat these meetings with smaller banks like you would an investor -- if you can make them understand how your business makes money it will help secure the funds needed, and at favorable terms.

It's also much easier to build relationships with bankers at these smaller banks, than say a Bank of America, which has less flexibility in terms of business lending guidelines. Even if your main bank is a large national institution, it's worth the effort to also work with some of the small local options.

Related: 10 New Ideas for Making Money on the Side

5. Constantly monitor and build your business credit.

I have always monitored my personal credit. I pay $12.95 per month, and that allows me to pull a fresh report every 30 days. I receive alerts in real-time related to activity on my credit reports. Over the years, this has taught me how credit works -- and how things like utilization and average-age-of-accounts all come into play.

I didn't know there was a similar product available on the business side until Liao introduced me to Nav, which is the same type of product I have been using for years, just designed for business credit. It also has an option for personal credit, but I've been using it for PAYDEX and Experian Business monitoring, as I like the personal credit service I have been using for years.

You can sign up for Nav for free and check it on a weekly basis if you are aggressively building your business credit profile. It's also a good idea to frequently check it just to make sure there aren't any inaccuracies reporting.

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