If you’ve applied for business credit, you may be having trouble getting the capital you need without a personal guarantee. Of course, you do not want your business credit on your personal credit profile, because this will wreck your debt-to-income ratio, and your personal credit score will take a very rapid nosedive. What’s the solution?
Get business credit without a personal guarantee. This is not as hard as it may sound, because lenders are in business to lend money. They’re not willing to lend money that won’t be paid back—that’s actually giving money away, not lending it. But lenders want to lend money, so they can get the money back with interest.
You can get business without personal guarantees, but you will first need to establish a business credit profile. There are several business credit reporting agencies. These organizations, which include Dun and Bradstreet, Experian Credit and Equifax Credit, are similar to the consumer credit bureaus, but they’re for business credit.
You will need to build a minimum Dun and Bradstreet credit rating of 75 (on a scale of 0 to 100) to get a non-guaranteed commercial loan. So if you’re planning to apply for a loan, you will need to get listed with Dun & Bradstreet (called getting a D-U-N-S number) and build a credit profile.
To build a credit profile, you will need to set up accounts with a few companies that report credit to D & B. A business credit card is one creditor that will report to D & B; many vendors like office supply and office furniture companies will also report to D & B. You need to set up a few accounts, use them wisely, and build your credit profile. Make sure you pay on time and keep your balances low.
The key to getting a commercial loan without a personal guarantee is to prove first that your business is creditworthy. And of course the way to do that is to generate a good business credit profile. It works much like your personal credit profile, and once you understand how to do this, it just makes sense. But until you have some idea where to start, it can be very confusing.
So your first step will be to establish some business credit accounts. Do this slowly over a period of a few months, and pay your bills on time. If you can pay more than the minimum on your accounts, do so. In fact, if you can afford to get a business card from American Express and pay off the full amount each month, this will significantly raise your credit profile.
Running a business should not require you to pledge your personal guarantee and put all your credit needs on your personal credit report. And it doesn’t require that. But it does require that you get a business credit profile started and build that credit profile so that you can get business credit, including non-guaranteed loans, on the strength of your business credit.