Business Finance

8 Steps to Becoming Business Credit Lendable

Having a solid plan to build business credit that can help you access business funding at a moment's notice is crucial. This blog post will cover our recommended first steps of that plan.

As a business owner, when you first set up a business you have to consider your short term and long term needs. One of those long term needs is typically financing. Don't think you can ignore this! As your business grows, don't you think you’ll need more cash flow in the future to fuel more growth? Savvy business owners know that the answer to that question is a strong and resounding YES!

As a way to prepare for your future needs, we recommend having a solid plan to build business credit that can help you access business funding at a moment's notice. This blog post will cover our recommended first steps of that plan. In the future we will go further in detail about the nuances of business credit offers and lenders.

What does it mean to be business credit lendable?


Being business credit lendable means that your business can get credit on its own without YOU, the owner. There are about 8 steps to accomplish this, maybe more, depending on how you break the process down. These 8 steps are specifically for business owners that want to build credit for their business without having to use their personal credit and finances as a guarantee. There are ways to build business credit using a personal guarantee that we will discuss in the future.


Why would you want this?

The cornerstone of a good business is POSITIVE CASH FLOW. As the owner, it's your job to make sure the bottom line is NOT RED. However, as the famous quote says "It takes money to make money." Don't assume you won't need money and then you end up needing it! In order to kickstart the cash generating engine inside your business, you may need some external funding. The steps in this blog post are meant to be a guide for business owners that currently operate a business or prospective business owners that plan to operate a business; the guide will help you avoid the hiccups that most business owners go through that prevent them from getting the maximum amount of business credit. Instead, you'll be able to start your journey to constant business credit approvals!

How is this achieved?

In general there are 8 things that need to be completed in order to become business credit lendable. Completing those 8 steps helps you establish the minimum credibility requirements to have small business credit lenders approve you for financing. The logic here is, would you let someone borrow money if you can’t identify them properly? NO. Same thing with business credit. You have to be able to be identified properly to become eligible to lenders.

What are the steps?

The eight things you need to complete to build the minimum credibility in the eyes of business credit lenders are: 

  1. Secure a Business Address
  2. Apply for an EIN
  3. Register your Business with a State
  4. Get a Business Fax and Phone Number
  5. Purchase a Domain Name and Set Up and Email from that Domain
  6. Set Up a Website 
  7. Get Listed with 411 and other online directories
  8. Open a Business Bank Account

Picture this:

A man walks into a bank to try and apply for a million dollar business loan. He walks out with three overdraft notices. He walks into a second bank and the business manager asks him what is the name of your business? He replies, I was hoping you could help me set one up. DON’T BE THIS GUY!

If you ever plan on seeking a business loan, make sure that you arrive at the bank ready! This next section is going to give you all the information you need to “show up” ready, whether online or in person.


STEP 1 - Secure a Business Address


First, but not least, getting a dedicated business address is going to be one of the first guidelines that will determine the type of loan that you qualify for. It has important implications for your future ability to secure loans from business lenders and commercial banks. This is especially true of SBA backed loans.

Why?

A commercial address will provide you with the best presentation in the eye of a lender to get business funding in the future. However, it will also be the most expensive option for you. Lenders prefer this option because they may have it as a policy to do walkthroughs during their underwriting process.  

  1. A virtual office will provide you with the next best option, you will be approved for most business credit offers, but some of the larger lending options may not be available to you. 
  2. A home address should be you last option but it is also the least expensive. Also consider that if you use a personal address to register your business, it may become publicly available on your state's website. 

[If you do not know what to do at this point, remember that although it may take some work, your address can be changed after your business has been registered.]

How do I get it?

Commercial Addresses

Locating your business at a commercial address provides benefits for business credit building. It’s easier to find and creditors will expect you to stay in business. To get a commercial office you will have to sign a commercial lease with a landlord or buy a building entirely. 

Virtual Offices

A virtual Office is an address that you can rent in order to establish a business presence in that location.

  1. iPostal1
  2. Regus
  3. Alliance Virtual Offices

Personal Address

This is any residential address that you can receive mail at. There are options to rent residential address. 

Business Address FAQ:

Will you be looking for funding from a commercial bank or the SBA within the next few months?

If yes, then we strongly recommend a commercial address.

Does my state publish the name and address of the owner online for the public to view?

If yes, then you will probably want to avoid using your personal address and decide between a commercial address or virtual office address.

Step 2 - Apply for an EIN

Filing for Your EIN

This is your TAX Identification Number that the IRS, other businesses, and yourself will use to identify your business. You may hear people say that it is like "Your SSN # for your business." This is not 100% true, but there are a lot of similarities.

How to Register for Your EIN

  1. Go to IRS.gov
  2. Click on File
  3. Click on Small Business
  4. Find the EIN Online Application
  5. Fill out the form and receive your EIN Confirmation Letter at the end.
  6. Make sure to save your EIN Confirmation Letter in a safe place. 

[When you eventually apply for a loan or a credit card for your business, you’ll usually be asked to either provide your Social Security number or EIN on the application. If you only have your Social Security number to offer, then you can rely only on your personal credit to help you qualify and get a good rate. But if you have an EIN, then you can rely on your business credit history as well.]

Step 3 - Register your Business with the State

How to get your Articles of Organization or Incorporation:

Registering Your Business Entity with a State

This is what provides you the actual legal protections and determines where you will have to go in the event of lawsuits. You will want to make sure that the state you choose is friendly for your desired business activities.

Registration Steps

  1. Go to google.com
  2. Type the name of the state in which you wish to register your business in the search bar.
  3. Type in Divisions of Corporations after the name of your State. Ex: "Delaware Division of Corporations"
  4. Hit Search
  5. Navigate to the correct department in your state:

The correct department could be:

  1. Secretary of State
  2. Division of Corporations
  3. Department of Treasury
  4. Division of Revenue

Once you find the forms that will allow you to register your business online fill out the correct information, pay the s=fee and select online delivery if possible.

[You will need to order a corporate kit for every LLC/Corp that your register.]

Step 4 - Get a Business Fax and Phone Number

When you set up a dedicated phone line for your business, you’re establishing your first, simple trade credit relationship with the phone company. This gets reported to credit agencies and helps in building business credit.

Step 5 - Purchase a Domain Name and Set Up and Email from that Domain

How to set purchase and set up a domain for your business:

  1. GO TO DOMAINS.GOOGLE.COM
  2. Search the name of the domain.
  3. Once you find a domain that is available, add it to your cart.
  4. Once the domain has been paid for, Google will take you to the google admin page, from there you will have the option of setting up an email address and website.

Step 6 - Set Up a Website 

There are multiple options to set up a website for your new business. Here are just a few:

  1. Squarespace -> This is a good starting option because it allows for email marketing automation, e-commerce integration, and it has the most user-friendly dashboard of the popular website platforms.
  2. Wordpress -> This is also a popular option because it gives the option to add endless integrations.
  3. Shopify -> This option is very popular among e-commerce users.
  4. Webflow -> I believe this is the best option if you have the time to learn how to use it. Webflow is an advanced customization website builder that will make your business stand out from the rest.

All of these options are great and provide templates for you to use as you upgrade your website.


Step 7 - Get Listed with 411 and other online directories

Listing your business online is a great way to generate inbound traffic. It is also a great way to build credibility with a bank that you actually intend to run a legitimate business.

How to get a 411 business listing:

  1. Go to List Yourself
  2. Click "Business" on the top navigation.
  3. Fill out the form and have your business phone nearby for the verification call.

How to List Your Business on Business Directories:

  1. GO to YEXT.com
  2. Sign up for a Demo
  3. Get in touch with one of their salespeople.
  4. They will list you on 200+ business directories online.

TAKEAWAYS

Getting people to buy from you means establishing a trusting relationship. The steps outlined above are the foundation of being able to build that trust. This is especially important for any relationship you will set up with banks, suppliers, and vendors that you may choose to do business with.


Step 8 - Open a Business Bank Account

In order to collect money and pay expenses, you will need a bank account: this is your version of a cash management system.  This section is meant to help you make a decision with which bank account to choose the right bank account for YOU. (Federal law mandates that you keep track of all of your transactions.)

Choosing a Bank for your Business:

Benefits of a Commercial Bank (Ex: Bank of America)

  1. More Lending options
  2. Offers secured business credit options
  3. Easier access to funds
  4. More Branches
  5. Faster roll out of new Tech

Benefits of a Credit Union

  1. Lower fees
  2. Offers secured business credit options
  3. Better Customer Service
  4. Fewer Branches
  5. Slow to roll out new tech

Setting up a bank account for your business:

Make an appointment with a personal banker at the bank of your choice and make sure to bring the following documents with you:

  1. EIN Letter - See the previous step.
  2. Articles of Incorporation or Organization - See Business Registration
  3. Operating Agreement or By-Laws
    (Make sure to ask for checks when setting up the bank account.)

**Having a business bank account is a crucial step in establishing business credit. It will not only provide a bank reference for the three credit reporting agencies, but will open doors for better credit accounts in the future**


https://www.fundera.com/blog/establish-business-credi

How:
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