Building good credit definitely takes time – so starting early will pay dividends later. Even if you ‘building a good credit’ a bank will not loan your business money if it cannot show either substantial assets or a steady, reliable income stream.
So, either the newly acquired property will have to more than pay for itself (e.g., a good cash flowing rental with a signed lease prior to closing) or it will have to have a steady source of other income (e.g. from consulting, property management, or RE sales over time, etc.).
Getting a business loan may not be all that difficult; your choices are somewhat fewer but it’s doable if the business either has assets and credit history of its own, or you give a personal guarantee.
With business loans, expect to pay several points and a higher interest rate if you are borrowing from banks. This is because they take higher risks by lending to a company versus a person living in home and those risks reflect in the higher rates. This will impact your ability to cash flow, etc. In many cases, people get excited about the idea of starting a business without understanding it will cost you more to do business in exchange for what can be very limited liability protection.
On the personal guarantee – is it an awesome thing to do? No. But, sometimes we can’t sit back and wait for the perfect situation to present itself. So, business owners need to do the best they can with what they have; if that means taking out a business loan with personal guarantee, and in using your corporation to do the investments for you – then go for it if it is the right business move for you.
In building good credit, whenever possible, try to establish credit lines that will grow along with the business.
For example, in setting up a credit line with your bank, try to get a credit line based on a percentage of your receivables, rather than a constant, static amounts. Chances are your credit line will be reviewed by your bank annually and will be subject to ceilings and restrictions, but try to build as much flexibility into your borrowing relationships as you can. This will leave you better equipped to finance fast growth. Also try to establish credit lines with your trade suppliers that grow along with your business as well.
In building good credit, you should be started before the company needs it.
No lending institution wants to lend money to a business in need of cash flow. The business can start out using the owner’s or officer’s credit to gain approvals under the business name, but as the business grows it should start to establish it’s own credit history and credit profile in order to take on business credit of it’s own.
When officers and owners use their own personal credit profiles to obtain credit for the business, they risk the chance of lowering their own personal credit scores. There are two reasons business owners should try not to use their personal guarantee on business credit. First, the individual signer is liable if the business cannot make the payments and second the credit obtained for the business can affect the person’s personal credit score.
Keep in mind, your personal credit score is based on several factors, including available credit, the amounts of available credit used, late payments, and much more.
Obtaining credit for a business is a process that should be established over time. The older the business the more options the business will have to build credit and obtain loans and leases without the use of personal guarantees. It is not easy to do this, but yet it is not impossible. The first step is to start building the business credit today.
A credit score is built by having lines of credit, credit accounts and trade references that report to the business credit bureaus. For most businesses it’s very difficult to find a business willing to grant credit with no personal guarantee and without any previous credit history.
In building good credit, if you have your own trade references, you should work with them to build the score. However most businesses need additional trade references that will grant credit and report to the credit agencies.
How to Secure a Personal Loan Quickly
If you have limited capital and are searching for a personal loan to expand your business, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.
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