Business Credit Cards no Personal Guarantee

Monday, June 11, 2012 at 3:51pm by Site Administrator

Obtaining Business Credit With No Personal Guarantee

 

Many new owners turn to business credit cards as a way to improve their credit rating quickly and receive other benefits. Credit limits tend to be higher on business cards, and most lenders include rewards programs that are more or less useful depending on the types of purchases requisite to your business. These cards also make it easier to control business spending and separate your personal and business finances.

Lenders are not jumping at the chance to issue business credit accounts to just any start-up, however. Especially in the aftermath of the sub-prime lending crisis and recession, all lending institutions have strengthened their requirements for judging risk. This means that new businesses typically must rely on a personal guarantee from the owner and anyone with more than a set percentage stake in the company. Since start-up failure is common, and owners don’t always have the minimum 650 credit score lenders prefer, it is worthwhile to consider alternative means of establishing business credit without relying on a personal guarantee. There are several ways to accomplish this.

 

Secured Credit

A line of secured credit is not going to provide much purchasing power, and it is typically much more expensive than an unsecured account. On top of these drawbacks, most major banks have stopped offering secured business credit cards altogether. The option still exists from reputable lenders, and the primary advantage is a secured credit line will substitute business cash investments for the personal guarantee. Some programs will place the security funds in an interest-bearing account for you, and they can be transferred to an unsecured credit line once your business has a solid credit history.

 

Collateral

Another option for obtaining business credit is to use collateral. Since the goal is to avoid mixing personal and business finance, this does not include the equity in your home or vehicles. Instead, business collateral may be used, including accounts receivable, inventory, and other assets under direct ownership by your company. This is a risky option because banks are fully within their rights to seize collateral in the event of non-payment. Fortunately, there are better ways to establish credit history quickly and gain access to an unsecured credit account without having to sacrifice purchasing power in the short term.

 

Steps for Building Positive History Quickly

There are several actions to get started on building credit history and access vendor credit accounts. You should apply for an Employer Identification Number (EIN) and a Dun & Bradstreet DUNS number. The EIN will be required for opening business accounts, and the DUNS number allows you to self-report all business accounts directly to the business credit bureau.

With EIN in hand, you can begin shopping for the right bank to open a business account. This should not be undertaken lightly. Speak directly with the manager of small business accounts at each of a minimum of three banks. The chosen bank needs to be truly interested in your success. The manager’s enthusiasm and benefits associated with different business accounts are the primary clues. You may not be ready to ask for a loan or other services yet, but that will change in the future.

The next step is setting up a dedicated phone line for your business. It can be land-based or mobile and should be registered to your DUNS account. Phone payments will immediately begin building a positive credit history. Any utilities or other regular payments made by the business should likewise be registered. Once this is accomplished, it is time to start investigating vendor credit.

Oil companies, FedEx and UPS offer credit lines directly to businesses. Since the limits tend to be much lower, these unsecured credit lines will require no personal guarantee. Other examples include Sears, Office Depot, Staples, Dell, and Walmart. Open three accounts total, one each month, with the vendors your company uses the most, and report these credit lines immediately upon acceptance.

Assuming payments are made on time every month, your company’s credit score is well on its way to being accepted for an unsecured business card in six months to a year. Two more tips will keep this schedule on track:

  • Registering with the credit bureau will result in phone calls from credit sales representatives. Avoid sharing information with them, or talking at all, because anything you say may be used against your company.
  • For a quick boost to the credit score, pay off vendor credit purchases immediately. You’ll still receive points for paying after the bill arrives, but early payment will earn more.
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