Do you want to start your own business or have plans to start a business? If so, then having a great credit score can help you a lot. A great credit score gives you easier access to business loans or lines of credit. A high score can also help your business get lower rates for loans and insurance, which leads to savings for your company.
But what should you do if you don’t have a business credit score or don’t have a good one? It might seem like you don’t have many options, but that’s not true. In this article, we’re going to discuss some of the best ways to obtain business credit even if you have a bad business credit score.
What is a Business Credit Score?
Business credit is similar to personal credit: it plays a substantial role in your ability to get access to financing options. If you pay your bills on time regularly, keep your credit utilization ratio low, and steer clear of significant infractions — i.e., bankruptcies — you can build a good business credit profile.
Personal and business credit scores differ in how they’re measured by the reporting agencies. Individual scores are usually rated on a scale of 300-850. Business scores are rated differently – usually on a scale of 0-100 depending on the reporting agency.
How to Establish Business Credit
Even if you’ve just started your business, chances are your company probably already has several business credit scores. Why is this? Because the 3 major business reporting bureaus − Experian, Equifax, and Dun & Bradstreet − gather information on businesses and use it to calculate credit scores. You can work on building these scores once you’ve got your business going.
Some of the things that you can do to start building business credit include opening accounts under your business name, obtaining a listed business phone number, and opening a business credit card or obtaining a business loan.
I Have a Bad Business Credit Score, What Can I Do to Get Financing?
If you have a less-than-perfect business credit score, it might be difficult to get approved for financing. But there are still options available to you:
- Secured credit cards
- Invoice financing
- Alternative business lenders
Each option has its pros and cons to consider before you opt for any of them, so you should be sure to review each to choose the best choice for your situation.
Secured Credit Cards
Secured business credit cards are specifically designed for business owners with bad credit. These credit cards are available to business owners who have poor business credit scores. In order to get one, you do need cash to put up for a deposit. If you have the cash, then these cards are great for establishing credit — and you can eventually move onto an unsecured credit card.
Does your business run off of invoices or an accounts receivable department? If so, invoice financing might be able to help with your cash flow and give you the financing that you need.
The way that invoice financing works is that you use outstanding invoices as collateral for a loan. Once your customer pays you, you pay the loan back plus a fee. Invoice financing doesn’t require credit, so you don’t have to worry about your business credit score holding you back.
If it’s not possible for you to secure a loan or line of credit from a bank, then you might have luck with an alternative lender. These alternatives determine eligibility differently than traditional lenders.
Most alternative lenders consider how long you’ve been in business, recent revenue, and personal credit scores. So, if you have a good personal credit score or decent business revenue, you may be able to secure financing through one of these lenders.
Microloans are another easy way to get funding for your business if your business credit score isn’t great. Microloans are usually smaller, but they are easier to get approved for. They can be used for a number of things such as getting your business going, paying for equipment, or paying to lease your office or storefront. Rather than looking at your credit history, microloan companies look at your business goals and objectives.
Crowdfunding is another way that you can fund your small business, and it’s grown popular over the years. It can help you raise the funds you need, although convincing people to give you money for your business may be difficult, which is why you need a solid business strategy. Rather than paying the money back that you earn, you have to deliver on the product that you promised to those who fund your business. However, obtaining the funding that you need isn’t dependent on your credit score, so if you have a great idea, you’re likely to get the funds you need to get your business going.
A bad business credit score doesn’t mean that you aren’t able to get financing for your business – it just means you need to get creative. Opting for secured credit cards, invoice financing, alternative business loans, microloans, and crowdfunding can give you access to the financing you need and help you build your business credit score.
Just because your business has a bad credit score doesn’t mean you have to give up on your small business dreams. Look into these alternative financing options to help you gain the funding you need so that your business can thrive.