Welcome to the initial step in our guide to building small business credit. Whether you are just starting a business or seeking business credit for an existing business it is important that you go through each step thoroughly and implement each and every step to give yourself the best chance at success.
- Establish a business presence
- Choose a business name
- Choose a legal entity and file appropriate documents
- Develop a business plan
- Obtain a tax identification number
- File licensing, permit and tax documents
- Draft operating documents for the business
- Obtain business insurance
- Establish business phone system and directory listings
- Establish an email and web presence
- Create business collateral materials
- Open a business bank account
- Setup accounting and record-keeping system
- Start your marketing efforts
- Systemize your business
- Run your business
- Keep your business in good standing
- Establish trade references that report to business credit bureaus
- Monitor your credit files and update references
- Obtain the capital and financing your business deserves
Step 1 ~ Establish a Business Presence
Perhaps the most fundamental step in setting up your business for obtaining business credit is to establish your place of business. Ultimately, the choice depends on your specific business so when making your decision we want you to understand a few important items:
- Lenders look down upon PO boxes, virtual offices, etc. and have these addresses on file and if this is your business address, business credit lenders will often decline your application instantly.
- In today's telecommuting world it is commonplace for even large volume companies to be based out of the home of the small business owner so having your home address as your business address will not adversely affect you in the lenders eyes.
- Most importantly, keep the address exactly the same for every document and application for your company. For example, 273
S Example St is not the same as 273 South Example Street. Whichever version you choose, keep it the same and you will save yourself a lot of headaches in the future.
Before we get too far we want to make it clear, the process of building business credit is slow and tedious and it is important that you thoroughly understand and implement each step. If you are patient you will be able to access any type of business credit financing with no personal guarantee. If you try and rush the process or simply skip one of these first steps you will ruin your chances of obtaining business credit cards, business lines of credit, equipment and automobile financing.
Step 2 ~ Choose a Business Name
Possibly the most important, yet commonly overlooked, sign of a successful business is giving the business a proper name. Choosing the right name will be an important marketing tool and will set the tone for your business image. There are a few things to keep in mind when developing your name to make sure you have the best chance at obtaining business credit:
- Make sure your business industry is well-received by business credit lenders and that it doesn't fall into their high risk categories.
- Choose a name that reflects the business industry (ex: XYZ Trucking, Inc.) for a corporation in the trucking business. Your original and attention-getting name should be registered as your DBA. You'll learn more about this option in the next step.
- Research shows that companies with descriptive names are more successful than those that are vague.
- Although you want to be descriptive try to keep the name broad enough to allow you the flexibility to any future change in the organization, products or services.
Choose a name that is not easily confused with other businesses so your business credit file doesn't get crossed with a business of similar name.
If you are the creative type you won't have a problem with this but the majority of us need a little help so here are a few ideas for generating the best name for your business:
- Make a list of similar businesses that might be your competitors and decide how you can differentiate yourself.
- There are a variety of companies that specialize in "branding", which includes giving the best possible name to your business. Depending on your budget and scope it would be beneficial to at least research the following options.
As an inexpensive alternative, we have found that Business Naming Software can provide the spark you need for the fraction of the cost.
- Now that you have a few ideas, the last step is to make sure that the same or similar name isn't being used by another business.
- Search the U.S. Patent and Trademark Office (USPTO)
- Search your state's Secretary of State website for business names and trademarks
- Use BizFilings' free Trademark Explorer to perform a national search to see if your chosen name is available
Surely you have chosen the next ‘Amazon.com’ and now you must select the proper legal structure for your business, the first key to building business credit without a personal guarantee.
Step 3 ~ Choose a Legal Entity
Now that you have a name picked out it is time to choose the right structure for your business. First, realize that operating as a Sole-Proprietor or Partnership will ensure that business credit issuers will ALWAYS ask for a personal guarantee on any business credit applications. This is a very important decision that will have long-term affects so please consider all of our advice below when choosing the legal entity for your business.
Choosing the right entity
In order to build business credit separate from your personal you need to choose between a C-Corporation, S-Corporation or an LLC. What's the difference?
Call and ask an expert for a basic guide to understanding
C Corporations, S Corporations and Limited Liability Companies (LLCs) at Lyoness Financial (310) 242-8933.
Which state should I file my entity?
It is recommended to file your entity in the state that you do business as lenders will want to see you doing business in the state where your entity is registered.
Filing your new business entity
There are two options available and which to choose depends on your specific situation.
Do-it-Yourself ~ The paperwork to file your new corporation is likely available through your state's Secretary of State website and can be filed by filling out and submitting the application along with paying any applicable fees.
Expert Assistance ~ We highly recommend using an expert to help setup your business entity the right way, at least the first time. The cost is nominal compared to the long-term benefits and ultimately the ease of approvals for any business credit applications. Your lawyer or CPA is able to set up your legal entity but it is our experience that they will charge at least double of what some of the online companies charge that specialize in structuring entities nationwide. It can be confusing searching and comparing companies so we are happy to recommend MyNewCompany who we found to be the best and most cost-effective service available. If you choose to use MyNewCompany, we recommend purchasing the Standard Package as a few of the additional benefits of the Complete Package can easily be done on your own for free through our help in this guide. However, we do recommend adding on the Corporate Kit, MyCompanyForms and QuickRecords Compliance Service to help expedite some of the next steps.
Step 4 ~ Develop a Business Plan
One of the most critical steps a small business overlooks is developing
a sound business plan. A thorough and well thought-out business plan will provide a clear picture of what's ahead for your business and what resources you will need to get to that point. In terms of business financing, this becomes critical when approaching banks for unsecured business lines of credit. As yourself, if you were lending someone $250,000 with no personal guarantee wouldn't you want to see a plan of how the money was going to be used and what their timeframe is for repayment? By spending the time upfront you will give your business a roadmap to success.
What is included in a business plan? See a sample business plan...
Note: The above is provided for informational purposes only and is NOT to10- be relied upon as legal advice.
We understand that the life of a small business owner is hectic and time is limited so we have detailed the options available to help in the development of your new business plan.
Business Plan in a Day ~ An easy-to-use, an easy-to-understand resource that offers solid advice from a recognized leader in the field.
Business Plan Pro ~ Over 500 samples from different industries, take pieces from each and form a unique plan to fit your business goals and objectives. Purchase through the latest upgraded version from the
Software Vendor new or buy a used version from Amazon.
Consulting Services ~ Depending on your budget and the need for large capital financing it might be beneficial to consult with an expert to develop a solid business plan. Expect to pay anywhere from $5,000-$20,000 to enlist their professional services but it is well worth the money if you have high hopes of growing your small business into a worldwide mega giant.
Step 5 ~ Obtain a Tax Identification Number
All business entities have a federal identification number call an EIN (Employer Identification Number) which is used for tax, financing and credit approval and monitoring purposes. Think of the EIN as a social security number for your business that will allow you to NEVER have to give out your personal information again. You can learn more about the procedures for filing your new EIN on the IRS Website.
As soon as you have registered, your permanent number can be used immediately for most of your business needs but before you go on an application spree please understand the following:
- You will be able to qualify for financing with your EIN alone
but some applications also ask for your social security number. Hint: Don't replace the social with your EIN, instead simply cross out the personal guarantor section before submitting the application. If your business credit file is strong enough (if it's not yet, it will be before you’re finished with this guide) you will easily be able to receive business credit with no personal guarantee.
- The difference between business and personal credit is that the business credit industry is not regulated by the government so there is no legal action that can be taken to have bad credit removed. Point being, take good care of your new EIN as improper use, late payments, collections or UCC filings can and will follow your business around and create problems when applying for new business credit.
Step 6 ~ Licenses, Permits & Tax Documents
Along with running your own business, you are faced with the tedious, and often overlooked, tasks of keeping your business compliant with all local, state and federal regulatory agencies. It is important to keep information current on your business license, registrations, permits and other associations specific to the business industry. The most common mistake business owners make when attempting to obtain financing is missing or incorrect information in these areas. Business credit issuers will make sure you are compliant on all levels before lending to your business. Take advantage of the resources we provide below to file the required documentation to operate your business that will keep you in the best light for financing down the road.
Whenever possible, we like to provide you with free options for our steps and this is one that can be done with a little research. Visit the Entrepreneur.com or SBA.gov and learn about every type of compliance filing that might be required of your business and contact the recommended governmental bodies in your respective state.
We also realize the majority of small business owners are too busy to continually research and file the proper documents so we recommend using MyNewCompanyForms along with QuickRecords Compliance Service to alert you of any necessary filing changes.
Step 7 ~ Draft Business Operating Documents
The last step in setting up a proper legal entity to provide the highest level of protection is to draft and file the documents that govern your Corporation or Limited Liability Company (LLC) and detail the operation and management structure of your business.
Instead of filing with the Secretary of State, these documents are created and stored within the company's internal record system. This is another item a bank will require even, in most cases, for opening a business checking account.
The directors of a corporation must draft bylaws and the LLC must draft an operating agreement to outline the company's rules and regulations. If you ordered Standard Package from MyNewCompany in Step 2 then you will have the Corporate Forms CD or LLC Forms CD (depending on your entity type) which contains multiple samples that can be modified to fit your business situation. We included a few other resources and we highly recommend consulting with an expert or at least studying enough examples and resources until you completely understand the details of the document.
- If you are the sole owner you might be able to get away with modifying one of the sample corporate bylaws or sample operating agreements we have available.
Note: The above is provided for informational purposes only and is NOT to be relied upon as legal advice.
- If not, we suggest you order MyNewCompanyForms since the additional documents and resources they provide can be used over and over throughout the life of your entity, such as: minutes, resolutions and an annual compliance checklist.
Step 8 ~ Obtain Business Insurance
The last step in setting up the foundation of your business is not critical in your quest for obtaining business credit and unsecured financing but it is a necessary topic of discussion for a small business owner to properly protect yourself and your business against unforeseen losses. Think of it this way, you wouldn't drive a car without car insurance and you don't want to run your business without business insurance. Having the right insurance protection is an essential part of the risk management system for any business and the options should be weighed to determine the right type and amount of coverage. By filling out a simple form at NetQuote you will be in touch with some of the industries leading carriers who will provide their expertise and make sure you have the proper coverage while staying within your budget. At the very least, you might save a few dollars on the coverage you already have and who couldn't use an extra few dollars a month.
- Business Insurance ~ Business Owner's Policies (BOP), Commercial Property, Insurance for Lost Income, Liability Coverage
- Group Health Insurance ~ Coverage for you and your employees where most carriers will allow pre-existing conditions
- Life Insurance ~ Protection for your family, business, commercial and personal assets
- Individual Health Insurance ~ Coverage for sole-owner businesses
- Home & Renters Insurance ~ Protection for your home-based business
Step 9 ~ Business Phone & Directory Listing
The success of the majority of small businesses is centered on the active participation of the small business owner(s). If something unforeseen happens to cause an extended leave of absence the small business must often close shop. If you have followed through with our advice, you now have the security blanket that will guard against this situation to allow your business every opportunity to succeed.
The second distinguishing factor for your business, after the EIN, is a dedicated business phone system and directory listing. First of all, you will need to establish a phone number that is solely dedicated to your new business. It is not important which type of system you choose; rather the number must have a professional company voicemail such as, "Thank you for calling XYZ Systems, Inc...” Review the business phone options we listed below and pick the one that best fits your situation.
- Cellular Phone ~ Signup for an option and later on in the guide we will show you how to transfer the contract out of your
“20 Steps to Properly Structure a Business for Credit… with No Personal Guarantee!”
personal name. Many of these providers will issue an account with no personal guarantee if you have a clear D&B report.
- Virtual Phone ~ Virtual toll-free number, voicemail, and internet fax all rolled into one affordable system
- Qwest ~ Offering a wide range of dedicated office services, and YES they can be used as a business credit reference to help get your business credit file started.
- The second-factor lenders look for is that your business is listed with directory assistance as it provides a simple vision of credibility and stability for your business. Each business has a difference in budget, need and marketing so we have provided two options to achieve the same result. The fastest and easiest choice is to subscribe to a listing in your local yellow pages. The benefits are two-fold, you instantly establish a directory assistance listing AND the majority of large yellow page advertising companies reports the use of your account to the business credit bureaus, thus giving your business its first trade-line and starts the process of building business credit. The second option is a little slower but provides the same result, although it is no substitute for the previous option. You can list your business for free with SuperPages and ListYourself so now your business will have at least a basic sense of professionalism.
Step 10 ~ Establish an Email & Web Presence
Our society has become accustomed to searching the internet to purchase goods, search for information or quickly research a company. While it is still uncommon for a business to be declined financing because they don't have a website, it is more and more becoming a standard of quickly judging the scope and long-term longevity of a business. It might not make a difference but then again it might make all the different, especially when attempting to obtain business lines of credit.
The process of establishing an email and web presence has become very easy and inexpensive. If anything, you will have the benefit of having a professional email address rather than promoting a free service.
- GoDaddy ~ Search for a domain name that resembles your business so your internet address and email can be easily recognizable, remember to keep it short and sweet.
- ProStores ~ If your business sells tangible goods and you don't have a website think about the amount of business you are missing because you are limited by geography. ProStores offers a simple, easy-to-setup and inexpensive option for starting a turn-key online business.
- com ~ For those of you who need an information based website can benefit from this inexpensive do-it-yourself service which allows you to simply add content to a predesigne website template. You save time and money and have a professionally designed website in hours.
- Dotster ~ Depending on the size and scope of your business, it can make all the difference to have a professionally designed and search engine optimized website (free traffic). We suggest you at least speak to a representative at Dotster to discuss your options. It can only help!
We hope you have taken our advice to stay ahead of the curve and present your business in the best possible light by having a functional and informative website. Just so you are aware, there are a few lenders we will introduce you to that won't approve your business unless you have a website with a corresponding email address that resembles the name of your business. We believe this will be an industry standard sooner rather than later.
Step 11 ~ Create Business Collateral Materials
Business collateral material is simply the marketing materials that help present your business, products or services. It is important to keep the layout and message the same throughout all communication pieces whether it is brochures, flyers, posters, business cards and the overall style and appeal of your website. There are many schools of thought around this but the most simple is to follow these easy steps below:
- Develop a color scheme and make sure they are visually attractive and appealing yet not overwhelming to the eyes. You will always be safe with blues and greens. (notice the color scheme of our website)
- With your color scheme in mind, you can begin development of your logo. A unique logo can be your silent advertising piece so that your business is recognized in an instant. When you think of any large corporation such as BMW or Apple you instantly picture their logo, and although it is unrealistic to develop this for your small business it is worth your time and effort to consider paying a consultant to help develop the "branding" of your business. If you are like the majority of small business owners who want the help but don't have the funds to pay the hefty consultant's fee, there are still options:
LogoYes ~ Easy, Affordable Do-it-Yourself Logo Design LogoWorks ~ Get a quality custom logo at a great price!
Now that you have the starting points you can begin developing your collateral material.
The first thing to think about with any of your marketing pieces is to be creative when preparing the language. The idea is to instantly catch the eye of your hopeful customer with catchy slogans and key terminology. Keep your business at the forefront and always point out benefits that distinguish you from the competition. Sprinkle in success stories, testimonials and a list of high-profile clientele and you will be well on your way. We recommend the following services to give your business that little extra for a little out of your pocket:
- Vista Print ~ Get 250 premium quality, color business cards FREE!
- iPrint ~ FREE Full Color Address Labels
- PhotoStamps ~ The exciting new way to turn your new logo into real US postage!
Step 12 ~ Open a Business Bank Account
As a small business owner you are likely also handling the financial record keeping along with running your business. It will be important to setup a system to keep the business records and organized and tracked separate from your personal accounts. This will save you time and money in the long-run along with begin to remove your personal liability from your business affairs. The basic financial systems for your business should include:
- Business Checking ~ We recommend setting up business checking accounts at a few different banks and maintaining a significant balance in each. If this is not possible, then try and run your accounts receivable and accounts payable through each so they all can see you are actively in business. Members of this website use and recommend the free business checking with WaMu, Bank of America, KeyBank and HSBC.
- Business Savings ~ A high-yield internet savings account with INGDirect can prove very beneficial for your business. Members utilize ING's automatic savings option to store and pay quarterly taxes, process payroll and fund benefit plans.
- Start Earning 4.20%. Great rates, no fees, no minimums
- Merchant Account ~ Stop losing sales and start accepting credit cards. Easy approval, lowest rates and quick setup…guaranteed!
A solid and long-term relationships with multiple large banks can and will make a difference in your future success when attempting to obtain business lines of credit with no personal guarantee. Treat them right and they will do the same in return.
Step 13 ~ Accounting & Record-Keeping
Every large business has a strong and reliable accounting and record-
keeping system running in the background, while the majority of small business owners spend a little time, effort or money implementing these systems for their business. Why is this important?
The large businesses understand the leverage of money and each have relationships with several banks who willingly lend them money because they can easily produce detailed financial statements to prove their lending credibility. The small business owner often downplays this which ultimately hinders their ability to obtain any type of bank financing. To clarify, there are a number of banks that will give your business an unsecured business loan or business line of credit with no documentation, but if you want to access the same type of financing given to larger companies it is critical to have your systems setup so information can be readily available in a clear and concise manner. One of the secrets to obtaining large lines of credit is to know how a bank expects to see the financial operation of your business detailed on paper. We will share this later in this guide but understand for now that it is important to implement the accounting and record-keeping solution that is best for your business, thinking both short-term and long-term.
Get prepared for all the accounting decisions your business must make by setting up an initial consultation (often free) with a few accountants in your local area to discuss the best structure for your business. Even if you don't employ their services you will have a full understanding of what processes and systems are necessary to implement for your business.
Recommended Resources:
What's the difference between Quicken & QuickBooks?
QuickBooks Solutions for Your Industry
Automated self-service payroll solutions for the do-it-yourself small business owner
Prepare prior years taxes online at TaxBrain.com and get your refund in 24 hours!
Professional Tax Help since 1989. File Back Taxes, Settle Tax Debts, Eliminate penalties, Stop Tax Collection
Step 14 ~ Start Your Marketing Efforts
Although marketing has no direct correlation to building business credit it is an important topic of discussion as marketing leads to sales, which leads to profit. And when attempting to obtain unsecured business financing with no personal guarantee a bank is going to want to see a successful and profitable business. The old adage is, "a bank will only lend you money when you don't need it," so the idea is to develop a streamlined marketing plan so that your business is self-sustaining and consistently shows a profit on paper which will allow you to go after and build a reserve of unsecured business loans and business lines of credit to use when you need it most.
A well-defined marketing plan will provide a valuable contribution to your small business, especially in the beginning. Too often the small business owner will open the doors without first understanding their products, services, pricing, promotion and most importantly how to differentiate their business from the competition. Time is money and until your small business implements a marketing plan, your time could be spent on marketing efforts that result in little to no sales activity.
Developing a marketing plan on your own can be a complicated task so we recommend consulting with a marketing expert if it is within your budget. The alternative is to utilize a software program that gives even the most inexperienced marketer a step-by-step process to develop and implement a marketing plan. Members of our website have used Marketing Plan Pro and each has been impressed with the high-powered results their new marketing plan provided their small business.
Step 15 ~ Systemize Your Business
The small business owner too often is the only factor determining the success and failure of their business. Although the task of systemizing your business can seem daunting, it can help overcome this downfall and provide your small business with every chance to succeed, with or without your direct participation in the day-to-day business activities. This becomes very important when applying for large business lines of credit as all banks will be more hesitant to lend to a company that is destined for failure without the direct participation of the small business owner. Having a system means security both for the banks and for your business.
The first step is to understand what we mean by systemizing your business. Simply put, it is implementing and documenting processes for each task in your business and creating an engine (system) for your business to run automatically. By documenting the process required for each task you will have the beginnings of an Operations Manual and begin to free yourself from being the only person who understands how to run your business. Think of it this way, if the company that created the engine for your car didn't provide a manual for each of the components that details how they operate and cooperate with other components to create a fully-functional system then it would be difficult and very time consuming for anyone except the original company to come in and fix a problem or simply service the vehicle. The good news is there is a manual thereby allowing any auto mechanic the ability to step in and diagnose problems to provide a simple and cost effective solution to get the engine running properly again. If you don't have the same manual setup for your business you are setting it up for failure, unless of course, you want to be directly involved for the rest of your life.
Before you get started developing your Operations Manual it is important to start with determining the long-term goals you envision for your small business. Once you have an idea of the ideal size and scope of your business you can determine the eventual revenue and the potential number of employees needed to maintain a profitable business at that level, which is also included in your Business Plan and Marketing Plan. From there you can create an organizational chart of current and future employees along with job descriptions to handle the different departmental processes. You have now given your business a structure to live by to help it grow in the future without your direct involvement.
Each business is different and has different operational structure so for now, it might be necessary to only have a few processes included in your Operations Manual, but remember to continue to add or modify your manual as your small business continues to grow.
Recommended Resources:
How to Produce Effective Operations and Maintenance Manuals The Ultimate Operations Manual
How to Make Your Business Run Without You Instant Systems (Instant Success)
Step 16 ~ Run Your Business
The process of setting up your small business for building business credit is over and you can now concentrate on running your business. We realize your purpose for reading this guide is to build small business credit and obtain unsecured financing with no personal guarantee. Rest assured, you will soon be applying for business credit but first,we feel obligated to provide you, the small business owner, with additional tools and resources that will help you efficiently run your business, attract new prospects and increase profits.
Recommended Resources:
Explode website traffic and increase sales by implementing a free affiliate program
Business & Human Resources Information at NOLO.com
Put your marketing efforts on automatic with this easy-to-use email broadcast system
How to earn $2 for every $1 you spend on advertising with SEO Is your business in need of immediate financing? FREE
Step 17 ~ Keep Business in Good Standing
Many new business owners are unaware of the requirements they must fulfill in order to keep their corporation or limited liability company (LLC) compliant with the state of formation. Incorporating a business or forming an LLC offers business owners the protection of limited liability, meaning the owners are typically not held responsible for the debts of the company. It also allows the business to apply for and obtain business credit with no personal guarantee from the owners. However, just having a corporation or LLC does not mean that the owners' personal assets are continually protected. Business owners must comply with specific requirements in order to remain protected under that corporate or LLC status. Otherwise, their limited liability may be lost, which is also known as "piercing the corporate veil." Small business owners should understand the direness of this situation and work to maintain the limited liability the corporation or LLC affords them.
All states impose certain requirements on corporations and LLCs formed there. One such requirement is the filing of an annual statement (a biennial statement in some states).
These statements are the state's way of keeping updated information on corporations and LLCs. Most states also impose a filing fee on these statements. Not filing annual statements and paying the necessary fees in a timely manner can result in a corporation or LLC being in "bad standing" with the state. Being in bad standing in a state can eventually lead to the administrative dissolution of the corporation or LLC. Therefore keeping your corporation or LLC in good standing at the state level is important.
Corporate Requirements:
Additionally, corporations are subject to a number of other ongoing requirements and formalities. History has dictated that such requirements must be satisfied in order to protect the corporate status. These formalities include, but are not limited to:
- Hold initial meeting of directors. After the formation of the corporation is complete, the corporation should hold an initial meeting of directors, also called an organizational meeting. At that meeting, the bylaws are adopted, officers are elected, and stock is issued to all shareholders.
- Adopt bylaws after incorporating. Each corporation must adopt bylaws, which is a document that outlines how the internal affairs of the corporation will be executed. The bylaws are the
second most important document behind the articles of incorporation. As mentioned above, the bylaws should be adopted at the initial meeting of directors.
- Conduct business on the corporation's behalf. Officers and directors should visibly be acting on behalf of, and in the best interest of the corporation. This is very important when it comes to officers or directors entering into contracts for the corporation.
- Hold annual meetings of directors and shareholders. One requirement of all corporations is that they hold annual meetings of both directors and shareholders. It is also important that the minutes of these meetings be kept with the corporate records. If items of business are determined by unanimous consent in lieu of holding a meeting, which is popular with many closely-held corporations, the unanimous consent documents should be kept with the corporate records.
- Keep documentation of corporate activity. In addition to keeping minutes of all director and shareholder meetings, it is important for corporations to maintain a stock ledger that records all shares of stock issued to shareholders and the contributed amount each share represents. Also, be sure to keep contracts into which the corporation enters, including leases or major business contracts.
- Keep documentation of corporate financial activity.
Corporations should record all disbursements, payments received, invoices issued (accounts receivable), and invoices received (accounts payable), and keep those records for a period of 7 years. Corporations should also keep balance sheets and profit and loss statements for each year. Additionally, it's important to document any loans taken by the corporation, as well as the repayment terms.
It is important to remember that a corporation is a legal entity that exists separately from its owners. Owners therefore, have a duty to maintain that separation. By failing to conduct these requirements, business owners risk losing the protection towards their personal assets. For example, if the basic corporate requirements aren't followed, and your corporation is sued, the plaintiff may try to name you personally in the lawsuit by claiming you (as a shareholder) are liable because you have not created a distinct separation between the corporation and yourself.
While any one of these items listed above on their own may not be enough to pierce the corporate veil, multiple items could lead to such an outcome. Additionally, the items mentioned below have caused courts to rule that the corporate veil has been pierced.
- Commingling of the owner's personal assets with the assets of the business.
- A shareholder or shareholders engaging in illegal, and/or fraudulent, and/or negligent acts (which can also result in the shareholders being convicted of criminal acts and possibly sent to jail).
- Inadequate capitalization of the business. LLC Recommendations
While LLCs do not have the formal ongoing requirements that corporations have, it is recommended that LLCs undertake many of the same steps. Common recommendations for LLCs include:
- Hold an organizational meeting. After the formation of the LLC is complete, the members or managers should hold a formal meeting to adopt an operating agreement and issue membership interests to members. Adopt an operating agreement. As with the corporate bylaws, the operating agreement for an LLC is an important document that outlines the internal governance of the LLC.
- Keep documentation of the LLC's activity. It is typically considered beneficial to keep records of any changes in membership interest and also to keep records of all major business decisions of the LLC, such as contracts and leases.
- Keep the documentation of financial activity. LLCs should maintain the same financial information outlined above for corporations.
- Hold annual meetings of members. Holding and documenting the business conducted at annual meetings of the members or managers helps LLCs keep updated ongoing records of decisions made by the owners.
MyNewCompany can help assist you in keeping your corporation or LLC compliant with requirements in any state.
Step 18 ~ Reporting Trade References
The amount of time spent on the seemingly unimportant tasks necessary to properly structure your business are about to show their worth as you begin to apply for business credit with no personal guarantee. First of all we would like to remind you again that building business credit is a slow and tedious process and any deviation will hinder your business' ability to obtain unsecured financing with no personal guarantee.
The next nine stages of this guide will go into detail about the process of building business credit but for now it is important to begin thinking about your motives for building business credit, what type and amount of unsecured financing your small business wants and needs to access and most importantly how fast it needs financing. If your business is in need of immediate financing please visit the Financing Section of our website and contact one of our experts to walk you through the options available, and yes there are some available without a personal guarantee if your business meets certain qualifications. Whether or not this is the case, you will be better off in the long-run by starting to build the business credit foundation now so your small business will be able to access larger and more flexible capital financing sources down the road.
It is important to introduce the concept of business credit and the importance of finding trade references that report to the business credit bureaus. A business credit file is similar to your personal credit file as they both report the credit activity and payment history that can be accessed by lenders when making a decision on whether or not to accept an application, determining interest rates, setting terms of the account and when increasing the current credit limit. If none of your personal accounts reported to your personal credit file, I'm sure you understand how difficult, if not impossible, it would be to obtain any type of credit as having no credit file is often worse than having a bad credit file. Luckily, the personal credit bureaus are heavily monitored and regulated by the government so the majority of creditors regularly report account activity.
The opposite can be said for the business credit bureaus, there is no regulation and the industry standard is to not report any account activity or payment history. Truth be told, almost every major commercial vendor and most banks will lend to a business if it has a thick and established credit file which can be difficult if only 10% of vendors report to the business credit bureaus. The good news for you is that in this guide we will provide you with enough vendors that will approve your business based on the current stage of your business credit profile and the best part is that each of them has historically reported activity to each of the business credit bureaus. Wherever you are starting we will give you the steps required to build a solid thick business credit file so you can obtain any type of unsecured financing with no personal guarantee.
If you are still confused don't worry, we will make the process as simple as possible so just keep reading and take each step we tell you to take. Remember, there are no shortcuts and skipping a step could permanently ruin your business credit file.
Step 19 ~ Monitor Business Credit Files
As you continue to build business credit it will be critical to continuously and regularly monitor your business credit files and keep your credit references up-to-date. We discussed in the previous step how the business credit bureaus are unregulated, which means they aren't required to follow the same rules as the personal credit bureaus. This makes it critical to stay on top of your bills and pay them well before the due date so you greatly reduce the chance to have a late payment show up on your report. Another reason to monitor your credit files is it is common for credit references to get crossed between businesses of similar names or address. If you are keeping track of every business account and something incorrect or erroneous shows up you can immediately take the necessary steps to have it removed. Again, since the business credit bureaus are unregulated they are not required to investigate within any certain period of time, if at all, but the good news is later in this guide we will show you the proper methods for disputing incorrect information.
In the previous step, we also discussed securing trade references that report to the credit bureaus. With the limited number of accounts that actually report it will often be necessary to have business credit that doesn't report just so your small business can access the unsecured financing it needs. These accounts can still be an asset as long as they are documented and the information is readily available when you are completing an application. Most business credit issuers will take these types of accounts into consideration and it could make the difference when making their approval decisions.
Please note, there is no substitution for a thick business credit file, but if anything these types of accounts will help get your business a faster start in building business credit.
Before we start the process to build small business credit it is necessary to write down any and all accounts that your business currently has and include the address and phone number for each business credit issuer, account number, date account opened, average account activity and credit limit. We also suggest keeping your business banking and general business information in the same document to have easy access to the information as you go through the process. During our initial consultation with the new clients, we provide you with templates for easy account record-keeping and tell you exactly what information business credit issuers like to see and in what format.
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Step 20 ~ Business Capital Financing
This guide is dedicated to giving you, the small business owner, the information, and connections necessary to build small business credit and obtain unsecured financing with no personal guarantee. Don't worry, we will get to that point but we realize time is of the essence to many of you and your small business can't often wait 3-6 months to infuse money into your business. As long as you have thoroughly completed each step in this section you will be surprised at the unsecured financing sources now available to your business. In most cases, you will have to still provide a personal guarantee but by having a properly structured business the financing doors will now be open to those with mediocre personal credit. It won't hurt to at least consult with an expert to see what financing might be possible.
Business Line of Credit
Learn and understand the business line of credit options available for any business and personal credit situation. Learn more about business lines of credit...
Business Credit Cards For business credit cards, personal credit cards and bad credit cards we have created relationships with each of the industries leading carriers along with provide you with an easy to use website to compare offers and apply online for an instant decision. We even share business credit card options available without a personal guarantee. Equipment Financing, Factoring & Commercial Loans Learn about the creative business financing options available without a personal guarantee, such as equipment financing, invoice and
