CREDIT BUILDER PROGRAMS – MYTH BUSTER
Credit Builder Program Myth Buster
Let’s get real for a moment. Everyone (no matter what people say) has had a less than perfect credit score at some point in their lives. And anyone who has started a business knows the pain of the first few years of trading, when personal savings, credit cards and loans are an easy way to get the initial finance for your business. Sadly, it’s a disastrous way to do it, once you’ve maxed out your personal credit, you are hit with a huge drop in your personal score that ripples across every aspect of your life and business. Unable to use your personal credit you look for business credit only to find you can’t get what you wanted because your personal score is too low. Double whammy.
Of course there are plenty of options for business owners with a lower than average business credit score. Using a business credit building program is an option that not only helps you get rolling, but can help you start to build an autonomous business credit profile.
What is a business credit builder program?
A business credit builder program is a system, or process, of obtaining business lines of credit or credit cards. These credit cards can be obtained from traditional banks, non-bank lenders, and/or retailers that provide business products and services. At FitUFinance we can help you obtain all types of business credit financing for your business, but our specialty is unsecured business line of credit and working capital. Having a realistic strategy for obtaining finance to grow your business is key, using credit builder programs will keep you moving in the right direction.
Building business credit is becoming more important, especially since the SBA is requiring lenders to use a combination of a business owners personal and business credit to determine their eligibility for SBA loans under $350,000.
That’s why building business credit is strategically the right move for any business owner. However, it’s important to fully understand how many of these business credit builder programs work before you decide to invest your hard-earned money into them. Firstly, let’s bust some myths surrounding building business credit.
Myth No. 1: No personal guarantee needed – This is the most common lie we see from some companies offering business credit builder programs. In fact, not all business credit lenders offer “no personal guarantee” options. Depending on the type of business credit you need, you may or may not need a personal guarantee. Why does this matter? Providing a personal guarantee means that the lender will check your personal credit history to determine your creditworthiness, and use your credit history as “collateral” for the line of credit. This means if you make late payments, or default for any reason, it will negatively affect your personal credit.
If you are applying for vendor trade credit lines, you may not need to provide a personal guarantee to get approved. The catch is that you can only use the vendor trade lines to purchase products and services from the vendor that issued you the line of credit and not anywhere else. A good example of this is obtaining a vendor trade line from Best Buy, Office Depot, or Quill.
Anytime a company like these approve you for a line of credit you need to understand that you will only be able to use that credit line to purchase products directly from them. Another example is an unsecured business line of credit. This type of business credit is issued by banks such as Chase and Fifth Third (or other non-bank lenders). You do need to provide a personal guarantee to secure this type of business credit.
You also need to have an exceptional personal credit history to get approved for this type of business credit. With vendor trade lines, you can have less than perfect personal credit and still get approved. Those are the biggest differences between vendor trade lines and unsecured business lines of credit — what it takes to get approved and how (and where) you can use them.
Myth No. 2: Use the funds anywhere, for any business purpose – Most companies who offer business credit builder programs are not honest in their advertisements about how you can use the business credit they will help you obtain. The two major types of business credit (and the types most of these companies will help you obtain) is vendor trade lines and unsecured business lines of credit. One of the biggest differences between these two types of business credit is how (and where) they can be used. However, with an unsecured business line of credit you can get it from just about any traditional bank or credit union and use it anywhere for any business purpose. There are no usage restrictions with unsecured business lines of credit like there are with vendor trade lines.
Myth No. 3: Get unsecured business lines of credit (or business credit cards) with bad credit – don’t be fooled, you simply cannot get lines of credit with bad credit. With vendor trade lines you may be able to apply, and get approved, for them without having a good personal credit history (or providing a personal guarantee). However, with unsecured business lines of credit you need a rock solid credit history.
Build Good Business Credit the Right Way
The foundation of good business credit is getting your personal credit in order. When the business is starting out, you may have to show collateral for a secured loan. If you don’t have it, lenders may use your personal credit to see if you qualify for a secured loan. Even if they don’t pull an actual score, they may use the report to determine financial patterns or activity.
Make sure you don’t have unpaid debts. Clear up any liens, collections, or charge offs. Your debt ratio should also make sense. You should stay below the 30% usage mark with revolving credit like credit cards. Try to pay off your balance each time you receive a statement. If lenders denied you credit in the past, review the suggestions to improve and take action.
The basic rule of credit is to show worthiness through your activities. Showing that you can borrow and repay on time builds your credit worthiness. You also need to use the right lenders with a good reputation. Look for business creditors who offer credit lines to pay for their products or services. Find a company with supplies related to your industry. Established companies receive a certain limit to buy items on credit. New businesses repay invoices based on agreed upon terms. Most offer payment returns of either 15, 30, or 45 days. Some terms extend to 60 or 90 days.
There is no magic wand when it comes to business credit, building good credit is all about being strategic, realistic and keeping on top of your liabilities. At FitUFinance we have options for every kind of scenario and we’ll help you find the right path to good credit and the finance your business needs to grow.
Remember …
WHEN THE BIG BANKS SAY NO, FITUFINANCE CAN HELP YOU!
Lisa Rodino
Director. FitUFinance.
Lisa Rodino is Commercial Finance Specialist who helps small business owners and investors navigate the many financing options available to help them grow and prosper.