Building Business Credit With Bad Personal Credit

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Crowdfunding

Crowdfunding lets you raise money from many individuals instead of relying on a single large investor. If people like your business idea, they can contribute funds. You’ll need a compelling pitch to make your crowdfunding campaign successful, usually hosted on platforms like Kickstarter or Indiegogo. These platforms take a percentage of the contributions. Unlike loans, you generally don’t need to repay crowdfunding money. However, some platforms, like Kickstarter, require you to refund contributions if you still need to meet your fundraising goal. To avoid this, Indiegogo offers various flexible fundraising options.

Building Business Credit

If your FICO score isn’t high enough to qualify for these options, you can start building your business credit instead.

Vendor Credit Tier

Establishing business credit through vendors is a proven strategy. Make sure to check whether your vendors report trade credit to credit bureaus and act accordingly. Once you have 5-8 credit accounts reporting from vendors, you can begin building your credit.

Retail Credit Tier

Once you have 5-8 trade lines reporting, you can advance to the retail credit tier, which includes retailers like Amazon and Walmart. If your company maintains good vendor credit, you should qualify to apply at this retail credit level.

Microloans

If your business needs only a small amount of funding, ranging from $500 to $35,000, consider getting a microloan from a microlender. You can find a local microlender through the Association for Business Opportunity at www.microenterpriseworks.org/.

Fleet Credit Tier

Once you have a minimum of ten retail credit lines reporting in the retail credit category, you can move up to the fleet credit tier. Companies like Chevron offer fleet credit, which you can use to pay for fuel, upgrades, and maintenance.

Trade Accounts

Build your credit further by opening trade accounts beyond these tiers. Establish trade accounts with all the suppliers you regularly work with. Considering the acquisition of a shelf company can also be a strategic move in enhancing your credit profile. Aim to have 10-14 such accounts. Utilities can also contribute to your business credit if they report it.

Cash Credit Tier

Once you have records for 14 fleet credit lines, you can move up to the cash credit tier, which includes companies like Visa and MasterCard. With enough payment transactions and time in business, your company can apply for conventional loans.

Grants

The government offers grants for various purposes, much like scholarships, and you usually don’t have to repay them. Visit https://www.grants.gov/ to search a directory of available grants using keywords relevant to your business. Although not every business qualifies for a grant, you will know once you search. To secure a grant, act promptly and avoid submitting incomplete applications. For those in the agricultural sector, you can find information at https://www.usda.gov/topics/farming/grants-and-loans. The Department of Housing and Urban Development (HUD) also issues industry-specific grants. However, if your business relates to something other than housing or urban development, HUD will disqualify you. You can find HUD grants at https://portal.hud.gov. State or local governments may also offer business funding. Collaborate with your state, county, or municipality to qualify for a local grant. You can also seek funding from local authorities by addressing a specific need in your local government.

401 K Financing

Use your existing 401K or IRA as collateral for business lending. Consult your tax advisor to avoid tax penalties. You can still earn returns on your 401K while benefiting from low-interest rates of less than 5%. This option doesn’t require a consumer credit score, nor does it involve reviewing tax returns or bank statements. You can secure a loan for the entire value of your 401K, choosing to invest in your own business rather than in other companies’ bonds.