5 Steps for Your Small Business to Get Credit and Get It Right

From Glenn Croston's Fast Company blog:

Small businesses have the power to get our economy moving again, creating jobs and real growth, but they continue finding credit difficult to come by, or shy away for fear of hidden traps. Congress hopes that the Small Business Jobs Act of 2010 may help, but getting credit remains challenging for small businesses, and those that do find credit often make costly mistakes. Green businesses are no exception to these challenges. Done correctly though credit is your friend, getting you and your business where you want to go. Despite all of the difficulty, small businesses and startups can build their credit right by working with people like La Mancha Sims and his company Corporate Cash.   As an experienced financial professional and a business man himself, Sims knows the challenges that his clients face, and has learned from experience how to avoid common mistakes, saving people a great deal of time, money and heartache. Corporate Cash works with small businesses and startups, particularly those that have been around less than 3 years, providing not just access to credit but personal coaching and counseling to build a relationship with clients and guide them through the whole process. When people come to him for help they have often tried and failed to develop their credit profile on their own, and he finds they have made the same common mistakes. By building relationships with lenders, and working personally with clients to deliver solutions, Sims can walk them through 5 steps they need to follow to build their credit and their business:   1. Establish a Business Credit Profile   Every business starts out its life with no credit, and no credit history. But it can't stay that way if it wants to grow and prosper. "Starting a business credit profile is the foundation," said Sims. "Your business should get credit from a few different places to start building your business credit profile. As your company grows and has been around longer, approvals get easier." If you don't establish your credit profile the right way the first time, you will end up paying more later.   2. Leverage Current Accounts   Once a business gets going, it has relationships with a variety of vendors, but may not be using these to build their credit. For example, if you are a landscaper, you might be paying cash out of pocket to the nursery or pay Home Depot with 30 days net terms. These accounts you already have can be tools to help build your credit, if structured correctly. Setting up revolving credit with Home Depot or the Ace Hardware store and having these reported to your business credit profile leverages the money you're already spending to build your credit for the future and strengthen your business. Setting up a proper financial statement is also a key ingredient that allows business owners to leverage credit.   3. Separate Business from Personal Credit   One of the most common and biggest credit mistakes that small businesses make is to use their personal credit to finance their business. It happens over and over again. They are just getting started, and find it easy to just charge business items on their personal credit cards. When they are sitting with a lender, and asked to sign for a personal guarantee with vendors or lenders, they are so eager to make things happen that they fail to consider the long term consequences. And the consequences can be significant, as many have recently discovered, when they are held personally liable for business debts. "We help people protect themselves," said Sims, "moving everything into business lines like HSBC revolving credit. People may have to start with a smaller line, particularly with a new business, but they can quickly increase the credit line if they make their payments."   4. Justify the Amount Requested   When requesting credit, lenders want to know what you plan to do with their money. Will you be hiring new staff? Investing in capital equipment? Funding a big trip to the ? Now more than ever banks and other lenders want to know, and failure to provide this information is likely to result in being turned down. Have a sound Business Plan, and make sure the requested credit fits into this Business Plan.   5. Knowing when to use Community Bankers   Community banks are a powerful resource for small businesses, and one they often neglect. "When I started in business, I always thought I had to go to big banks," said Sims, working only with banks like Chase and Bank of America until he found that community banks can often provide better solutions. "Now is the time to use them," advises Sims. "Open a savings account, get to know them, and start building a relationship. Then, when you're ready, they will be willing to work with you."   Glenn Croston is the author of "75 Green Businesses" and "Starting Green", and the founder of Starting Up Green, helping green businesses to get started and grow. He is also the co-creator of the Home Sustainable Challenge.   SUP9609