Getting a bank loan in the name of your business that reports to the business credit agencies is invaluable for building business credit and finding larger and less expensive financing in the future. It may seem like an impossible task since banks have very tight lending criteria compared to other funding sources, but there is a little trick to getting a loan from a bank.
Your best bet is to try an SBA backed bank. Banks that are working with the SBA have a certain percentage of their loans guaranteed by the government. Their lending criterion is a bit looser since they have that security in the case of a loan default.
You can go on the SBA website to find a local SBA backed bank in your area. Once you find a few, you will want to locate one that will give you a loan in the name of your business, secured by a certificate of deposit (CD) of the same amount, that reports to at least one of the 3 business credit agencies; D&B, Equifax, and Experian. Banks are more than likely going to report to Equifax.
The CD loan may look something like this:
1. Business owner borrows money to get a CD to secure the bank loan.
2. The bank makes a loan dollar for dollar based on the CD amount.
3. The day the loan funds the owner can repay the loan 100%, or they can separately deposit the money from the loan/line of credit and use that exclusively to pay back the loan.
The recommended amount to use is at least $5,000. This money can come from anywhere including friends, family, business associates, and personal accounts. The money will never be at risk since the full amount will be sitting in the CD earning interest.
It is possible to use the funds received from the loan to repay itself. When all is said and done, you will get back the $5,000 CD amount with interest. The interest rate from the CD should be somewhat similar to the interest rate paid on the loan. That means you will now have a $5,000 bank on your business credit report and it didn’t cost you, or your business, virtually anything.
This technique gives a large push towards building business credit and is just one of many easy techniques to increase business credit scores. Having good business credit scores will open up a greater variety of funding sources for your business and make it much easier to get approved for financing.
Jarrett Pflieger holds a BA in Entrepreneurship and is a featured writer for BusinessFinance.com. Build business credit and search for business capital for free today at businessfinance.com/business-loans