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4 Essential Steps to Secure Bulletproof Business Credit Before You Launch

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Imagine this:

You've poured your heart and soul into crafting the perfect business idea.

You've identified a gap in the market, assembled a solid plan, and are chomping at the bit to make your vision happen.

But then comes the hurdle – securing funding.

Business credit becomes your lifeline, opening doors to loans, lines of credit, and other financial resources needed to launch and sustain your venture.

Business credit becomes your key to unlocking the resources you need to thrive. However, securing business credit can be challenging, especially for new ventures, and a weak credit profile can leave you shut out, temporarily putting your dreams on hold.

So, Kelli, what’s the good news?

Building a strong foundation for business credit doesn't have to be a mystery.

By taking proactive steps before or immediately after starting your business you can dramatically increase your chances of securing funding and getting your business going in the right direction.

Here are 4 crucial steps to preparing your business for funding:

1. Choose Your Industry Wisely: Understanding NAICS Codes and Lender Risk Perception

Every business falls under a specific industry classification system, known as the North American Industry Classification System (NAICS). This system assigns a unique code to each industry based on its economic activity.

Why is this important for your business credit?

Not all industries are created equal when it comes to business credit. Lenders often consider the NAICS code when evaluating loan applications and they tend to view certain sectors as inherently riskier, requiring stricter credit requirements and potentially higher interest rates.

Some industries are considered higher risk due to factors like market volatility, high failure rates, or heavy reliance on external factors.

For example, a restaurant (NAICS code 722) might face steeper scrutiny compared to a software development company (NAICS code 5415).

Before you dive headfirst, take some time to understand your industry's risk profile.

Here's where the NAICS (North American Industry Classification System) Association comes in.

Their website provides a comprehensive database where you can find your industry's specific code. Once you have it, research the risk associated with that code.

Knowing your industry's risk profile allows you to:

  • Set realistic expectations: If you're entering a high-risk industry, be prepared to build a stronger personal credit score, save up a larger down payment, or consider offering additional collateral to secure loans.

  • Strategize for success: Research alternative funding options that might be more readily available for high-risk businesses, such as angel investors or venture capitalists.

NAICS High Risk/Cash Intensive Industries

2. Project a Professional Image: Virtual Presence Matters

In the early stages, many businesses operate remotely or from co-working spaces.

Even if you're bootstrapping your business from a home office, establishing a professional presence is key to building trust with potential lenders. Forget the image of your name and number scribbled on a napkin – consider investing in a virtual address and phone number. Obtaining a virtual address and phone number offers several advantages:

Here's why a virtual presence matters:

  • Creates a sense of legitimacy: A dedicated business address and phone number demonstrate to lenders that you're a serious operation, not a one-person side hustle. It provides a legitimate business location instead of a personal home address.

  • Improves communication and accessibility: A dedicated business phone number separates your personal calls from professional inquiries, allowing for a more polished and organized communication system. This ensures you don't miss important business calls or correspondence, reflecting positively on your professionalism and creditworthiness.

  • Offers flexibility and scalability: Virtual addresses are significantly cheaper than leasing a physical office space, saving valuable resources during the crucial startup phase. However, as your business grows, you can easily upgrade your virtual address to a physical office space without interrupting business operations.

You can easily get a virtual business address and phone number at Bizee or Opus Virtual Offices.

These comanpies are all-in-one business set-up centers.

3. Building Your Business Credit History (and Maintaining Personal Credit): A Two-Pronged Approach

While your personal credit score might be the initial benchmark lenders use, building a separate business credit history is crucial for long-term success.

Here's how to tackle both aspects:

  • Establish a Dun & Bradstreet Number (D-U-N-S): This unique identifier acts as your business's social security number in the credit world. Obtaining a D-U-N-S number is free and allows businesses to build a separate credit history with vendors, suppliers, and other creditors.

  • Pay bills on time, every time: Even for new businesses, lenders often consider the owner's personal credit score as an indicator of financial responsibility. Focus on building a strong personal credit score (ideally above 700) by:

    • Paying bills on time consistently.

    • Keeping credit card balances low and utilizing credit responsibly.

    • Avoiding unnecessary credit inquiries. This is the golden rule of building strong credit, both personal and business. Late payments are a red flag for lenders and can significantly damage your credit score.

  • Manage debt responsibly: While some debt can be a strategic tool for growth, avoid overextending yourself. Utilize credit cards wisely, pay down balances regularly, and prioritize debt repayment to improve your personal and business credit scores.

4. Start Strong, Stay Strong: Building a Lasting Credit Foundation

Remember, it's never too late to implement these practices! Even existing businesses can benefit from a solid credit foundation. Establishing a strong business credit history is an ongoing process, not a one-time fix.

Here's how these steps set you up for long-term success:

  • Monitor your business credit reports: Regularly review your Dun & Bradstreet and other business credit reports for inaccuracies or errors. Dispute any discrepancies promptly to ensure your creditworthiness is accurately reflected. A strong business credit history translates to better loan terms. Lenders are more likely to approve larger loan amounts with lower interest rates for businesses with a proven track record of responsible financial management.

  • Establish positive payment relationships: Build strong connections with vendors and suppliers. Pay invoices promptly and consider negotiating extended payment terms to demonstrate your financial responsibility.

  • Diversify your credit mix: As your business grows, explore different credit options beyond traditional loans. This might include lines of credit, equipment financing, or invoice factoring, demonstrating your ability to manage various forms of debt.

By taking these proactive steps before or immediately after launching your business, you can build a strong foundation for business credit.

A strong business credit foundation is an investment in your company's future. It takes time and consistent effort, but the long-term effects are significant.

With a solid financial foundation, you'll be well on your way to securing the funding you need to launch your business with confidence.