BUILDING BUSINESS CREDIT FOR YOUR NEW BUSINESS

BUILDING BUSINESS CREDIT FOR YOUR NEW BUSINESS
By: Allen T. May, C.E.O. of Westwood Associates, LLC

A business credit card gives you the convenience of a credit card for business expenses. This can keep your business transactions separate from your personal expenditures. Most business credit cards require a personal guarantee or personal credit check. This may happen even when you use your businesses EIN on the application instead of your social security number. Your business needs to build its own credit so it stands alone from you personally. If you have fair or bad personal credit, you may not be able to get approval for an unsecured business credit card. With bad credit, a secured business credit card might be your only option. However, if you have good credit, you will most likely get approved for an unsecured business credit card.
One of the most challenging tasks most small business owners experience is developing business credit for their new venture. My grandmother used to tell me, "Getting credit is easy. Keeping credit is what's difficult." There remains a lot of truth in that logic. I probably have more credit cards than I need and their interest rates are shameful. Regardless, if you pay your balances off promptly, its inconsequential what the annual interest rates are on your credit and charge cards. For instance, many credit cards will offer free interest for 12 to 18 months if your purchase is over $1,000. Its good policy to take advantage of those offers when available.
If a bank denies your business credit card application, a secured business credit card is another option. Most people are familiar with "secured" credit cards. These credit cards are offered by many banks and credit unions. The process for obtaining one is simple. Monies you deposited into savings account or certificate of deposit are held by the bank or credit union as "security" for the line of credit they issue to you on a credit card. I recommend to clients seeking such a credit card to check with their bank first. In the alternative, these banks offer secured credit cards and as of today, March 20, 2018, they are allowing the following limits for securing a line of credit on their credit cards:
Baptist Credit Union
www.bcu.org
Secured MasterCard
Deposit equals 100% of credit limit
Interest is earned in a savings account of 0.20% annually
$500 minimum deposit
$100,000 maximum deposit
BBVA Compass Bank
www.bbvacompass.com
Business Secured Visa Credit Card
Deposit equals 90% of credit limit
Interest is earned on your money
Annual Fee is $40
Interest rate on card: 16.24%
$500 minimum deposit
$10,000 maximum deposit
Business Edition Secured Visa Card
www.businesseditionvisa.com
Deposit equals 100% of credit limit
Annual Fee: $39
Interest Rate on card: 18.24%
$2,000 minimum deposit
$100,000 maximum deposit
Capital One Bank
www.capitalone.com
Secured MasterCard
Deposits equals 100% of credit limit
No interest earned on your money
$200 minimum deposit
$3,000 maximum deposit
Citibank
www.citibank.com
Secured MasterCard
Deposit equals 100% of credit limit
No interest earned on your money
$300 minimum deposit
$25,000 maximum deposit
Discover Card
www.discovercard.com
Secured Discover card
Deposit equals 100% of credit limit
No interest earned on your money
$500 minimum deposit
$5,000 maximum deposit
First Premier Bank
www.firstpremiercard.com
Secured MasterCard
Deposits equal 100% of credit limit
No interest earned on your money
$200 minimum deposit
$3,000 maximum deposit
OpenSky Visa
www.openskyvisa.com
Secured Visa
Deposit equals 100% of your credit limit
No interest earned on your money
$200 minimum deposit
$3,000 maximum deposit
Wells Fargo
www.wellsfargo.com
Secured MasterCard
Deposit equals 100% of your credit limit
Interest is earned on your savings and/or CD account
Annual fee: $25 per card
Interest rate on card: 18.99%
$300 minimum deposit
$100,000 maximum deposit
Worth mentioning, during my research on secured credit cards, these banks and financial intuitions DO NOT offer a secured credit card, either personally or for your business.
American Express
www.americanexpress.com
Regions Bank
www.regionsbank.com
Secured credit cards are a unique product offered by banks and financial institutions for consumers but what most people DON'T know is that they are also available for businesses. This is an excellent tool to develop credit for your business. The process is rather simple as well. You place cash in a savings account or Certificate of Deposit with a bank and they provide you a credit card, loan, or line of credit equal to that amount. Its a good thing for the bank because they have your money up front so no matter what you charge on the credit card they issued you, they will never suffer a loss. For example, you go into a bank and open a savings account - IN YOUR BUSINESS NAME - with $5,000. Then, you ask the loan department to issue you one of their credit cards - IN YOUR BUSINESS NAME - for $5,000. The savings account is "frozen" meaning you cannot make withdrawals from it because it "secures" the line of credit the bank has extended you, which you will access via the Visa or MasterCard. Again, its a simple and easy process and allows you the opportunity to start building credit in your new business name.
If you have the cash, I strongly recommend that get with your bank and set up a "line of credit" in your business name. Make clear to your banker EXACTLY what your objectives are so you are both on the same page. Here's how this works. You can use as little as $5,000.00 but if you have the cash, I recommend starting with a minimum of $25,000.00 to $100,000.00. You open a certificate of deposit with your bank, and I recommend for a 5-year term. Only because the 5-year CD's are paying the highest interest rates on your money. Then, you tell your banker that you want to "secure" an equal amount ($25,000 to $100,000) as a "line of credit" under your business name. ALERT!!!! If they do not report to Experian Business Credit and/or Dunn & Bradstreet, then you are NOT interested in doing this with them. Remember, the sole purchase for doing this is to build credit in your business name.
The way business credit cards report to credit bureaus can be tricky. Reporting varies, depending on the bank and/or card issuer. Personal credit reports are different from business credit reports. If you have a business card, your business may have a credit report at one or more business credit bureaus. But, not all business credit cards report to business credit bureaus. To find out if a business credit card reports to a business credit bureau, ask the issuer BEFORE you apply. Capital One and American Express reports a business credit card to business credit bureaus.
Unfortunately, there aren't many issuers that offer secured business credit cards. This is why I always recommend to my clients to reach out to their bankers for assistance on this. They should be able to help you. If not, find a banker who will.
DISCLAIMER: Westwood Associates, LLC does not receive compensation from any of the card issuers or banks discussed in this post. Reasonable efforts are made to maintain accurate information, though all credit card information is presented without warranty. All information posted on this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Westwood Associates, LLC does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, please visit each bank, credit union, or card issuer.
For additional information, please feel to reach out to me at allentmay@gmail.com or via mobile phone: (214) 893-2623.