True entrepreneurs and investors that earn their keep by lending money have never been daunted by the natural cycles of the economy. As a matter of fact, when the news is busy pitching tales of woeful times, small business owners get more creative than ever to discover unique products to service the market and capture a rightful share. According to Entrepreneur Magazine there are still plenty of resources more suitable than a neighborhood loan shark. Rather than going to the traditional lenders, such as the mainstream banks, you are more apt to get lucky with alternative lenders. Regardless of where you get your funding, you need to prove your credit-worthiness. The steps below outline what it takes for a start up to establish a strong business credit image, but these steps can easily be applied to a small company already in operation where applicable.
1. First you must choose a business entity, such as a LLC, C-corp, S-corp or partnership and register with the state where your business is located. It is very important to file any changes you make to you business entity any time during the year.
2. Get the Employer Identification Number (EIN) for the business and begin to use this in all your business dealings rather than your personal Social Security Number.
3. Write a comprehensive business and marketing plan that clearly defines your business model and financial projections. There is help available through the U.S. Small Business Administration and SCORE if you are not sure what to do.
4. Register with Dun & Bradstreet. This is a credit reporting agency for business. Unlike the personal credit reporting agencies that automatically keep tabs on your credit habits, you must monitor the activity with your business credit and be sure the data for your company is being updated. You will be assigned a Paydex Score which gives your business its credit ranking. Your goal is to attain of score of 75-80.
5. Find vendors that report to Dun & Bradstreet and make sure they are reporting your history with them.
6. Use your business name and EIN with all your vendors and suppliers, rather than your personal information.
7. Pay all your bills on or before the due dates.
8. Apply for lines of credit with several vendors, such as office supply stores and other suppliers where you purchase materials for your business. Use the lines of credit but pay the bills in full each month. Make sure this activity is reported to Dun & Bradstreet.
9. Establish relationships within your business community, such as with the local Chamber of Commerce. Maintain a strong relationship with your banker even if you do not intend to apply for a traditional loan.
10. Stay current with your taxes.
11. Comply with all laws and regulations that apply to your particular industry.
12. Once you are in the position to apply for commercial funding, be prepared with the written details of how you intend to meet your monthly obligations to repay the loan.