After you establish your corporation or LLC it is very important to take the steps to separate your personal and business credit. Since 95% of business owners fail within 5 years, and most for financial reasons you will want to minimize your personal guarantees. It is recommended to stop financing your business with your personal credit cards and obtain a business credit card in the name of your entity under the EIN number. Yes, a business credit card will be personal guaranteed but the debt will not show up in your personal credit bureau.

As you know, banks are not lending money to new business owners. You have to take the steps to BUILD business credit to have a better shot of getting cash lines of credit down the road.

Keep in mind you may be losing business by having no business credit profile built up properly with the bureaus. Think about it, how do you check out another business? Do you call the IRS and pull their personal tax returns? Do you call their bank and ask to see their last three months of business bank statements? NO, you can NOT! The best option is to invest between $40 to $120 with Dun and Bradstreet® and pull a report on them. On the other side, what will your business look like if someone checks it out (without your knowledge by the way-you are not notified)? Will your business be standing financially naked?

Call NCP today at 1-888-627-7007 to learn about our programs to help your company build business credit properly and put your business in the position to secure more cash and capital.

Let me Give You Other Strategies to Secure Business Credit (Vendor and Cash Lines) for Your Business inToday’s Tight Economy

No matter which country we live in, we all have some type of a credit profile. In the U.S., the FICO® score, as it’s called, will range from 300-850. When you purchase a home, the higher your FICO® score, the better the loan rate. FICO® scores are the credit scores most lenders use to make lending decisions about you. The higher your score, the less risky you are in the eyes of a lender. Each country has a standardized credit scoring system. In the UK the bureau scores are distributed by Callscore, Delphi and Wescore
Most business owners don’t realize that when they start a business, it’s crucial to develop a strong business credit score totally separate from your personal credit score. A business credit score will range from 0-100, and is controlled by different business credit reporting agencies and bureaus. (Dun and Bradstreet™ and Corporate Experian® are two of the most familiar and are used worldwide.)

Typically it takes 2-4 years to develop a business credit score of 75 or higher, which is equivalent to a 700 personal score. A good business credit score affects the ability of your business to develop business trade credit lines without personal guarantees, and with better terms than you’d receive on your own.

Trade credit is when a vendor grants you credit to buy supplies in the name of your business, and ideally they do not require a personal guarantee.
Business lines of credit are different. That is what business owner’s access when they want cash to grow their business and expand their marketing. Even though business lines of credit are personally guaranteed, it is very important to develop them in the name of the business. Business lines of credit should NOT affect your debt-to-income ratio personally.

The best time to secure a business line of credit is when your business does not need it. That is most likely when your business is profitable, and your personal credit score is strong. Do not wait until it is too late to apply.
Most banks require you to be in business for at least one to two years today (used to be six months) — another reason to start your corporation or LLC for your business today. This gets the clocking ticking for developing a business line of credit.

Have you ever applied for a business line of credit and you knew your personal credit score was over 700 but the bank came back and said it only came up at 660? You may be wondering how the bank gets a different number? Did they use a different credit bureau? Did they automatically drop your score 40-50 points just to charge you more interest on a line or loan? None of the above. Actually, there is a big difference between your personal credit score by itself and your personal credit score being evaluated for a line of credit or a loan. Only the bank has access to this process and you do not.

The Liquid Credit Score is a combination of 4 items:
• Your personal credit score (revolving debt is a big component).
• The business’s industry (a high-risk industry is much less likely to get a line of credit or much less at a minimum).
• The business’s gross revenue. The higher the gross revenue, the larger the line of credit.
• Length of time in business. One year is better than six months.

All these factors make up the “LCS” score. The minimum LCS score for a line of credit or a loan is 165. You can take your personal credit score and divide by four as a rough estimate of where your company may stand.

The entire lending industry is changing weekly, if not daily, so if anything, I would expect the standards to become higher over the next year or so.
That is why I would recommend getting your business in a position sooner rather than later to develop a business line of credit.

Summary and To-Do List:
• Incorporate or form a corporation for your business. If you have any friends or business associates still operating as a sole proprietorship, have them contact NCP immediately to form an entity. Business credit must be developed in a separate legal entity to be effective.
• Improve your personal credit score. The fastest way to increase your personal credit score is to keep your personal credit card balances in the 5-20% range. If you are maxed out on your personal credit cards and pay down the balance, be careful. The banks are taking out over $2 trillion dollars out of the consumer credit market in 2009 and 2010. If you pay down your balance to 5%, there is a risk the bank may lower your credit limit dramatically, which will increase your revolving debt percentage again. You may want to develop a personal emergency fund first, up to 6-8 months of your personal overhead, as a first step.

Second, focus on paying down your revolving debt which will help increase your personal credit score. Keep the cards open with low balances. Closing them does not help. If you can only pay the minimum balance always pay $1 over your minimum balance, which will help your credit score. Your personal credit score and your revolving debt levels are a major factor when it comes to your business securing cash lines of credit in the name of the business. Ideally, you would want your credit score at 740 or higher and your revolving debt at 20% or lower. Banks will accept a 50% ratio many times, if your credit score is high.

• Keep improving the revenue of your business. This is a major factor along with profit margin when it comes to banks providing you with a business line of credit. Today, many banks will not give you a line of credit unless you have been in business for 1-2 years. A business credit card in the name of your corporation or LLC is an alternative. You will receive opportunities for a merchant account cash advance if you accept VISA/MASTERCARD for your business. Typically, you have to be in business for 9 months to one year, and you may receive up to 100% of your VISA/MASTERCARD’s last 3-6 months average total transactions.

Caution: You have to understand both the cash advance ratio and the remit rate. The cash advance ratio is the amount you will pay back over about 5-8 months. A cash advance ratio will range from 1.20 to 1.48. This means if you secure a $100K cash advance you will pay back $120,000 to $148,000 within that 5-8 months. You will have to change your merchant account service and you want to know the remit rate. That is the daily percentage that will come out of your future VISA/MASTERCARD sales on a daily basis. That will range from 14-25% that may come out daily. This type of advance is best used when you can buy assets for pennies on the dollar or can leverage it with more marketing. If you are behind on bills, this is NOT an option.

Contact NCP 1-888-627-7007 for the best resource for a Merchant Account Cash Advance for your business. If your business is drowning in debt and you need to negotiate with vendors quickly, listen to this powerful teleseminar: www.budurl.com/businessdefender for tips and resources to help your business.

• The longer you are in business before you apply the better. One year appears to be the minimum. Like with everything in life, there are exceptions.

Do not use your personal credit cards to finance your business. If you or anyone you know is operating as a sole proprietor with credit cards in the name of the business, they are negatively affecting their revolving debt. This makes it much more difficult to access business lines of credit later on.
Do not operate as a sole proprietorship. To truly develop your personal and business credit independently, you must first segregate your business and personal assets by forming a separate legal entity for your business.
You need to have a deeper understanding of the process banks use to help you obtain business credit. Remember, business credit is very different than trade credit.

Trade credit involves lines of credit with vendors such as Home Depot® or Office Max®, giving you access to purchase supplies at those stores. This is not cash for your business.

We often see business owners making the mistake of using business lines of credit (cash) to pay for items they should be using trade credit for. You should use lines of credit only for items you cannot use trade credit for, like marketing expenses, payroll, health insurance or other bills. Ideally, you won’t need any of lines of credit — rather, your business will generate enough cash to pay for all your marketing, payroll and health insurance. But if cash flow is tight, lines of credit may come in very handy!

What does the bank look at when it comes to providing you with the following? The key in the United States (it may be slightly different depending upon which country your business is located) is to ask the banker which personal credit bureau do they use to pull your credit score for a business credit card, business line of credit or a business loan. At many banks it is very different. We do come across some banks that will actually use a tri-merge (a combination of all three credit bureaus in the United States-Experian, Equifax and Transunion).

Business Credit Card: Up to $35,000
Personal Guarantee Required: Yes
Affect Your Personal Credit Score: No (unless you are late on payments)
Personal Credit Score: 700 or greater. 30% or less of personal revolving debt.
Business bank account: not required.
Liquid Credit Score: Does not apply.
6 months in business: Does not apply.
Derogatory Info that would disqualify your business from the process: Bankruptcy, Open Judgments, Large Collection Items Settled

Business Line of Credit: Up to $100,000
Personal Guarantee Required: Yes
Affect Your Personal Credit Score: No (unless you are late on payments)
Personal Credit Score: 740 or greater. 30% or less of personal revolving debt.
Business bank account: Required.
Liquid Credit Score: 185 or higher. Estimate – take your personal credit score divided by four.
1-2 years in business: Does apply. 15% of annual gross revenues, if in a low-risk category. If a high-risk category, it is 10% of annual gross revenues.
Derogatory Info that would disqualify your business from the process: Bankruptcy, Open Judgments, Large Collection Items Settled
Personal and business revolving debt below 50%.

Business Loan: Up to $100,000
Personal Guarantee Required: Yes
Affect Your Personal Credit Score: No (unless you are late on payments)
Personal Credit Score: 740 or greater. 30% or less of personal revolving debt.
Business bank account: Required.
Liquid Credit Score: 185 or higher. Estimate – take your personal credit score divided by four.
1-2 years in business: Does apply. 10% of annual gross revenues, if in a low-risk category. If a high-risk category, it is 10% of annual gross revenues.
Derogatory Info that would disqualify your business from the process: Bankruptcy, Open Judgments, Large Collection Items Settled
Personal and business revolving debt below 50%.

These criteria were extracted directly from a major bank’s underwriting department. They represent many of the inside secrets to obtaining business credit cards, lines of credit and loans. Although these factors will most likely change over time, the outline presented here will help you determine where you and your business stand in order to take advantage of these resources.

Questions? Take the next step and call NCP at 1-888-627-7007 or 1-702-367-7373 for more information on how our business credit builder system can help your business.