How to Establish Business Credit Without Personal Guarantee for a Small Business

Alliant Business Systems has developed a presentation on “How to Establish Business Credit Without Personal Guarantee.”

Knowing your business credit is the first step to building a strong financial future for your business. Your business credit can be as important as your personal credit. Creditors and suppliers are increasingly using business credit reports to make lending and credit decisions.

Establishing business credit may seem like a daunting process—especially if your business is new. But it’s not. Some things in business are easy. You know your product or service inside out and backwards. But when it comes to building your business credit, you — like countless other small business owners we’ve helped — you might be coming up a bit short. You’ll need a little time, a bit of patience, and a nudge in the right direction. Think of the steps below as your roadmap for establishing business credit.


How to Establish Business Credit Without Personal Guarantee for a Small Business

Some things in business are easy. You believe in your business because you know your team, your customers, and product or service inside out and backwards. That faith makes it easy to sell your service and promote your business. In contrast, establishing business credit may seem like a daunting prospect, especially when your business is new.

It doesn’t have to be difficult. If you’ve tried to build business credit and come up short like so many other small business owners Alliant Business Services has helped, take a deep breath. You’ll need a little time, a bit of patience, and a nudge in the right direction. Consider the following your nudge.

Warning: Timing is Everything

Before we get started, let’s revisit a point we made in the introduction. Establishing good credit takes time, so you’ll want to get started before you think you need to. If you wait until you need a loan, working capital, or a revolving line of credit, you’re starting out behind the eight ball. Start now, secure in the knowledge that even these small steps will dramatically increase your chances later.

Know Your Business Credit Score

If you ignore, neglect, or forget everything else on this page, you should always know your business credit score. It’s the first step toward building a strong financial future for your business. Your business credit is just as important as your personal credit, since creditors and suppliers use business credit reports to make their lending and credit decisions.

Start With the Fundamentals

Small details have a lot to say to potential creditors. They will be looking for fundamentals like a legally-established business name, the appropriate legal and financial structures, a website and email, any appropriate permits and licenses, and a business bank account. These should be your first steps; after all, they also provide legal and tax protections that may be necessary later.

Don’t Mix Business and Personal Finances

You should act as though your business finances and your personal finances are oil and water — never to be mixed. Alliant Business Systems has a business credit program that can help you disentangle the two and improve your odds of approval.

Build Relationships

Your first credit relationships won’t be with the SBA or a major lender. They’re more likely to be the same businesses you use for small things — office supplies, shipping, and the like — purchased under a line of credit. Nor do they need to be big to be effective. Your FedEx or Staples line of credit can be a building block toward bigger things, provided you pay on time. Because terms and conditions change and you don’t want to be caught flat-footed, keep your options open by building relationships with multiple vendors and lenders.

Know the Five C’s

Be mindful of the five C’s of business credit. They’re the criteria a lender uses to evaluate your business. In brief, these are:

  1. Capacity, the ability to repay
  2. Capital, the money you’ve personally invested and are able to contribute to business growth
  3. Collateral, the ability to secure the loan
  4. Conditions, the use to which the loan will be put
  5. Character, your lender’s assessment of your trustworthiness

This is also one of the many times when writing a business plan can help you make sense of your current position, and map the steps to get you where you want to be.

How Business Credit Scores are Calculated

Business credit scores range from 0 to 100, with 0 representing a high risk and 100 representing a low risk. Scores are based on a number of factors contained in your business credit file.

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization
  • Trends over time
  • Public record recency, frequency and dollar amount
  • Demographics such as years on file, Standard Industrial Classification codes and business size

Monitor, Repair, then Monitor Some More

We know that some folks are mystified by how business credit scores are calculated, but we’re shocked to find how many business owners have no idea what their business credit report contains. For the amount of power they wield, the credit bureaus are entirely too fallible. Your credit report can be riddled with errors, or stuffed to the brim with inaccurate or outdated data.

Business credit monitoring helps you take advantage of business credit repair, after which you should still monitor on an ongoing basis. That way, you’ll always know that your report is accurate and is portraying your business’s creditworthiness in a fair light.

The Seven-Step Business Credit Building Program

The Alliant 7-Step Business Credit Building Program is simple, effective, and affordable. Businesses that appreciate and implement this approach to building business credit get funding in a consistent and predictable manner. If you’re navigating the challenges of establishing — or even rebuilding — business credit, we can help. Contact us today for a free business credit consultation, or to see how we can assist you!