Business Credit Without a Revenue History
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Get Funding for Your Startup Business
New Enterprises
Every business requires money, but new enterprises require more capital than any other sort of business.
Startup Businesses
To begin with, startup businesses are brand new organizations, which means cash flow is limited if not nonexistent.
Inventory and Equipment
You’ll need inventory and equipment to grow your firm, but it will be difficult to secure funding if you don’t have any expertise to show funders.
Fundability
- Every conversation about business finance begins with the question of fundability.
- The ability of a business to receive money is referred to as its fundability.
- Fundability encompasses all of the factors that a lender or credit provider will consider when determining whether you will be able to repay a loan provided to your firm.
- These include things you may not have thought were crucial, such as your address and company entity.
The 3 Cs Capital Acquisition Formula
Primary Purpose
A lender’s primary purpose is to ensure that business owners repay them in full and on schedule.
Cash Flow
Lenders consider cash flow, collateral, and credit when determining a company’s fundability.
More “Cs”
The more “Cs” you have, the more financial alternatives you have.
Getting Business Capital as a Startup
- Credit lenders see a few red flags in startup enterprises.
- Startups do not have cash flow, their time in business is limited or nonexistent, they may lack collateral, a new business may not own equipment, and they most likely do not own any property.
- As a result, new entrepreneurs must be inventive to obtain capital for their business ventures.
401K Financing
- Retirement earnings from a 401K plan can be used as collateral.
- Please keep in mind that this is not a business loan.
- You will not be charged an early withdrawal penalty or a tax penalty.
- You put the money back in by donating, just like in any other 401K plan.
- This means you won’t have to give up your retirement savings.
- This program is known as a 401K Rollover for Working Capital, while the IRS calls it a Rollover for Business Startups (ROBS).
- According to the IRS, a ROBS qualified plan is a distinct entity with its own set of regulations.
- The plan, rather than the individual, owns the trade through its firm stock investments.
- As a result, certain filing exemptions for individuals may not apply to such a plan.
- This is not a loan against your 401K, thus there is no interest to pay.
- It does not rely on 401K or stock as collateral.
401K Financing: Terms and Qualifying
- 401K financing has low-interest rates of less than 5%.
- More than $35,000 must be invested in your 401K.
- You can normally get up to 100% of what is “rollable” in your 401K.
- A copy of your two most recent 401K statements will be requested by the lender.
- Even if your credit is seriously damaged, you can obtain 401K financing.
- You cannot use a 401K from a company where you are currently employed.
IRA Financing
- IRA financing is similar to 401K financing.
- You can invest a portion of your retirement assets in your business in as little as three weeks.
- This gives you greater control over the performance of your retirement plan assets as well as the operating money required for business growth.
IRA Financing
- In general, you will work with a CPA to transfer a non-contributing and qualifying account.
- This provides for a cash-out of half of the amount, or $50,000, whichever is less.
- If applicable, your CPA will set up a self-directed IRA for the remaining money.
- You will need collateral to qualify for IRA financing.
Equipment Leasing
- Instead of purchasing equipment for your company, you may lease it.
- You will frequently put down less money than you would if you were purchasing the equipment.
- With an equipment lease, you can negotiate customizable conditions.
- After your lease expires, it is simple to upgrade your equipment.
- This is useful if your equipment, such as a computer, suddenly becomes obsolete.
Equipment Leasing: Terms and Qualifying
- With a personal credit score as low as 640, they can approve you for equipment financing and leasing.
- Lenders will ask for information on the equipment you plan to lease to approve you.
- To qualify, you will need collateral.
- They can approve you for up to $10 million in equipment finance after a simple credit check.
Reward-Based Crowdfunding
- If you have a huge personal network, ideally via social media, then reward-based crowdfunding may be the best option for your company.
- You can get cash for your business from your fans.
- Begin your crowdfunding campaign with a service like Kickstarter; always read the fine print before joining up.
- If you do not accomplish your target by the end of the campaign, several crowdfunding services force you to forfeit your funding.
- Indiegogo, on the other hand, offers a flexible fundraising option to help you avoid losing your work.
- Crowdfunding platforms will take a percentage of the funds received by your campaign.
- Crowdfunding platforms may also press you to deliver on your promises, which means you’ll have to create your goods while collecting funds.
- Donors may become wary of crowdfunding proposals as a result of incorrect information shared on social media.
- When contributors can intimately connect with a product or service, crowdfunding works best.
- Simple businesses may not do as well on these platforms.
- On crowdfunding websites, artistic pursuits typically perform the best.
- Because crowdfunding campaigns take time, only try this method of funding if you believe you have a good possibility of success.
Reward-Based Crowdfunding: Terms and Qualifying
- Depending on the platform you utilize, the terms for crowdfunding will vary.
- Check to ensure that your platform of choice will allow your industry to collaborate with them.
- For example, even though recreational cannabis usage is allowed in some places, Kickstarter does not allow fundraising for drugs, nicotine, tobacco, or vape.
- Every major crowdfunding platform includes a section for rules and regulations.
Business listings
411-national Directory
Take the time to double-check that all major authorities (the state, the IRS, the bank, and the 411-national directory) have your company classified in the same manner and under your exact legal name.
Correct Business Name
Take the time to double-check that any payment you receive (power bill, phone bill, landlord, etc.) contains the correct business name and is sent to the correct business address.
Step 2: Your Business Credit Reports
Corporate Entities
For a copy of your Smart Business survey, go to: http://www.smartbusinessreports.com/.
- A study will set you back between $49 and $99 dollars.
- Check to see how many trade lines are reporting, whether you have a company credit score, if you have an active Experian Business Profile, and if there have been any new inquiries.
Dun & Bradstreet
- Obtaining a Dun & Bradstreet number (D-U-N-S #) kicks off the process of creating a credit profile for the company with them.
- Your D-U-N-S #, which you can get for free at http://www.dnb.com/, can also let your company borrow without a personal guarantor.
- D&B will charge you $2,000 or more for “rolling” this into a kit.
- You may also sign up for DNBi SelfMonitor to keep track of your credit as it’s being built.
- D&B Self Monitoring subscriptions range from $39 to $99 a month.
Read and Understand Your Reports
- Consumer credit assessments are not the same as business credit reports.
- The majority of studies have five different risk ratings on them, each measuring risk in different ways.
- The Paydex ranking, which is the most important score in the business world, is focused entirely on payment history, which is somewhat different from customer ratings.
Dun & Bradstreet’s Business Paydex Score
These scores are based on Payment History
- Expect payment may come early 100
- Payment is prompt 80
- Payment comes 14 days beyond terms 70
- Payment comes 21 days beyond terms 60
- Payment comes 30 days beyond terms 50
- Payment comes 60 days beyond terms 40
- Payment comes 90 days beyond terms 30
- Payment comes 120 days beyond terms 20
Business Credit Reports
Business Credit Reports List
Business Credit Reports list: Details on payments the business has made for each individual account; full payment record; upper credit limit; how much the business owner currently owes on each account; how much is past due; what the terms of the account are; when the account was reported and last updated; payment details for each account; current assets; liabilities; working capital; net worth, and sales.
Payment Information
Payment information for each transaction is used in business records, as well as extensive commentary showing payment trends.
Market Risk
These publications vary from customer reports in appearance and feel, so thoroughly search them to help determine your market risk.
Step 3: Get Approved for Vendor Credit
2 Ways to Start Business Credit
- D&B Credibility offers one way to start a business credit profile and they will try to convince you that it is the only way, even though it’s not.
- They will charge upwards of $2,000 to put trade lines on your report using your current creditors.
- These only report to D&B and take time.
- They choose what can and can’t get added, and most cannot get added.
- You don’t get any new credit; only the same creditors are added.
- The other method of establishing company credit is close to that of establishing consumer credit.
- Obtain approval for new borrowers who can file reports with the credit rating agencies.
- You get actual credit that you will use to grow your company, and your business credit profile and score are established from that business credit report.
Business Credit Reports
Business Credit Reports List
Business Credit Reports list: Details on payments the business has made for each individual account; full payment record; upper credit limit; how much the business owner currently owes on each account; how much is past due; what the terms of the account are; when the account was reported and last updated; payment details for each account; current assets; liabilities; working capital; net worth, and sales.
Payment Information
Payment information for each transaction is used in business records, as well as extensive commentary showing payment trends.
Market Risk
These publications vary from customer reports in appearance and feel, so thoroughly search them to help determine your market risk.
Obtain Vendor Accounts
Credit Records
When you don’t have any previous business credit records, you’ll need to start with vendor accounts to create credit.
Initial Credit
Even if you are a startup company, these are accounts from suppliers that offer you initial credit.
Business Credit
This credit is reported to business rating agencies, so you’ll get actual credit while still building business credit.
Vendor Accounts
- When a corporation (vendor) provides a line of credit to your enterprise on “Net 15, 30, 60, or 90” day terms, it is known as a vendor line of credit.
- This ensures you can buy their goods or services up to a certain dollar limit and pay the bill in full within 15, 30, 60, or 90 days.
- If you’re on Net 30 terms and buy $300 worth of merchandise now, you’ll have to pay that back over the next 30 days.
- You can get goods and services for your business and delay payment for 30 days, easing cash flow, and some suppliers will accept your company for Net 30 payment terms based on as little as an EIN number and 411 listing verification.
- You must first apply for and be granted an account.
- Then you put the credit to work, costing more than $50.
- Finally, you pay the bill on time or early; keep in mind that your key business credit score is purely dependent on how you pay.
- In 30-50 days, or up to three reporting periods, those accounts will report to the business reporting agencies.
- You must first apply for and be granted an account.
- Then you put the credit to work, costing more than $50.
- Finally, you pay the bill on time or early; keep in mind that your key business credit score is purely dependent on how you pay.
- In 30-50 days, or up to three reporting periods, those accounts will report to the business reporting agencies.
Start Vendor Accounts
Profile And Score
With starter vendors, you must create a business credit profile and score.
Initial Credit
Even if you have no credit, no score, or no trade lines, starter vendors will give you initial credit.
Starter Allowance
Most supermarkets, such as Staples, will not give you an initial starter allowance, so don’t bother.
True Starter Vendors
Laughlin Associates
Organizational Configuration
Laughlin Associates is a firm that specializes in organizational configuration and compliance.
411 Listing And Ein
Your 411 listing and EIN are the only things available for Laughlin to report to Experian.
Laughlin Reports
With Net 30 terms, Laughlin reports in 30-60 days.
Quill Office Supplies
- Quill Office Supplies specializes in the sale of office, packing, and cleaning supplies.
- D&B is the company’s parent company.
- If a D&B score has been created, you must first put an initial order.
- You will need to put up to three orders of $50 or more for them to accept you if you have no prior credit history.
Gempler’s/Office Depot
- Gempler’s and Office Depot all market office supplies and report to D&B.
- Place an initial order of $50 and choose the “Invoice me” option to establish credit with this firm.
- They will pull credit after choosing this alternative.
- If you are not eligible for Net 30 terms, prepay for your order and continue to purchase using the “invoice me” option until you are approved.
Reliable Office Supplies
- Office supplies and promotional items are sold through Reliable Office Supplies.
- D&B, Experian, and Equifax are the companies that this corporation reports to.
- Place an initial order, then insist that your order be invoiced or credited to your organization, and your credit will be pulled.
- Continue buying and asking to be invoiced or billed if you are not approved.
- The more orders you place, the more likely you are to be approved for Net 30 terms.
Uline Shipping Supplies
- Shipping, packaging, and manufacturing equipment are all available from Uline Shipping Supplies.
- You must have your DUNS number so Uline reports to D&B.
- Two references, as well as a bank reference, will be needed.
- To get accepted for Net 30 rates, the first few orders will need to be prepaid.
Things to Remember.
- To establish your initial credit, you may need to get any vendors you won’t use too much.
- Do not use your Social Security number on all applications.
- The trick to a decent credit score is to pay your bills on time.
- You should not begin with store credit because you will be turned down.
- Wait until you have five accounts registered before applying for cash, and wait until you have ten accounts recorded before applying for cash.