“They explained to me that the bank cannot lend money to poor people because these people are not creditworthy.” Muhammad Yunus.
As an entrepreneur, you are responsible for two things: finding deals and finding money. Business credit is a great financing tool for your business including your real estate investing, so why stop after the first round of funding when you need more? There are six actions you can take to increase your business credit more rapidly.
Action Step 1: Apply for Another Round
Once you qualify and are awarded the initial business credit due to your personal credit history, you can apply for new rounds of funding every 90 days. However, you must keep your personal credit in tact because lenders favor people with low debt to credit ratios, high credit scores and timely payment histories. If you received business credit through 100 Percent Financed, our consultants will advise you when it’s time for you to apply for your next round.
Action Step 2: Start a Dummy Corporation
A dummy business, aka Shell Corporation, is used solely for the purpose in this instance to receive business credit. This way, if your real business doesn’t qualify for additional funding, you can apply for business credit under the name of your dummy corporation. To set it up, pick a name and register your business.
Action Step 3: Open a Foreign File Account
Let’s say you started a business in your home state, the state in which you live, and use your physical address for your business. You may want to consider foreign filing your business in another state that is lender friendly. There are states out there that are willing and eager to lend you money. As long as your business is foreign filed in that particular state, you can go to their local bank and apply directly for business credit.
Action Step 4: Set up a Virtual Office
The way to get a foreign file is by having a virtual office. All you are basically doing is paying a company a monthly or annual fee to forward your mail from out of state to your personal address or your local P.O Box. That way you won’t have to travel each week to retrieve your mail that is sitting out of state from your foreign file. The virtual office will provide you with a legal mailing address, and all your mail will arrive at one central location. Just so you know, lenders do not visit the physical address listed for your business location to verify that you have an actual business.
People often ask if it’s beneficial to have a separate address for your business away from your home. The answer is yes, because banks like to know that your business is a separate entity from your home life. They view it as having a more legitimized business than as opposed to operating a home-based business, and I should add that there is nothing wrong with having a home-based business. It’s just viewed as being more official when operating outside the home. And if you do not want to invest in a virtual office, you can always use a relative’s address; of course, you will have to get their permission first.
Action Step 5: Seek Personal Credit Line Increases
Every six months, you should ask your creditors for a credit line increase on your personal credit cards and your business credit cards. Regarding your business credit cards, lenders will want to know why you want an increase. The simplest answer would be to say that you want an increase for business use. You can always tell your lenders that you are a real estate investor always buying properties and you need the additional funding to finance labor costs and materials. Make sure you give them a specific amount. So, if your established business credit line is currently $40k, you can ask for a $62k line of credit; which is an increase by $22k. The key is to be as specific as possible, even if you have to itemize where the money will be allocated.
Some lenders may want additional information from you and may also want to check your personal credit file. That is okay because it’s a part of the procedure that they must follow. Now the reason to ask for an increase on your personal credit is to help your business credit. Lenders look at your personal credit against your business credit, especially since most business credit is based on stated docs and without having to verify your income.
Your personal credit reveals how you manage credit and how you pay off debt. The higher the credit line on your personal credit incentivizes lenders to match it to your business credit. So, if you are just starting out with business credit and your personal credit limits are lower around the $5k or $6k mark, lenders will customarily give you that same amount in business credit. Asking for an increase in personal credit will almost always determine the amount you will receive for business credit.
Action Step 5: Keep Your Personal Credit Clean
Maintain your personal credit according to industry standards. Pay your debts on time while keeping your debt to credit ratio below 30%. Lenders periodically look at your personal credit, and if it shows that your are not managing your debt the way they feel is appropriate, lenders can reduce your credit limits without ever telling you beforehand. You will most likely discover the decrease when you attempt to use your business credit card for a major purchase and the transaction is declined.
In conclusion, having some credit is not enough, but being creditworthy puts you in the position to not only build your credit portfolio, but to build your business. If you do not have any business credit, you can apply today and receive a funding estimate tomorrow. Apply at the link below for business credit:
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