How to Establish New Business Credit
There are a few easy first steps that need to be taken. I have told people the following procedure for years and regularly have them come back to me and say it doesn’t work. I have repeatedly told them that I am certain it does work and I do it all the time. They then want me to prove it by doing it. I can do this, but then I have to charge them for the service. Now for many, that is worth securing the line of credit, but I will tell you again, it DOES work. The real problem that this creates is that it is usually tried on the most significant candidate and if it doesn’t work, it’s very difficult to remold that creditor’s thinking and get the credit on the second effort. If you want to try it, do it with a creditor of lesser importance.
You will need 3 business references and your bank information. Even if the bank is a new account, they just need to verify that the business has a bank account. The bank won’t disclose your balance, when it was opened, or other personal details, so don’t worry about that happening.
To address the references, you want to have 3 people (businesses) who will say you have/had credit with them in the recent past, the level of credit in dollars, and that “you pay in terms”. My firm often offers to do this for our clients, as we have extended credit by virtue of taking only a retainer and putting the balance on terms. As you now commonly see with job verifications, many questions cannot be answered and shouldn’t even be asked. In a job, did they work there between this date and that date, and was their pay a number that they provided. That’s pretty much all the info. So too with a credit reference, they had/have credit with us, a high line of $6,000, and pay in terms. What those terms are is personal information.
Many tell me they don’t have anyone who can do that anymore, but we always find 3. Someone like a uniform company, a friend who you always made sure they got paid, etc. We have also created credit references for our clients. A check can be provided to someone expressly for the purpose of establishing credit. Postdate the check for 30 days forward and ask the creditor to hold it for the 30 days. The truth is that a bank does not have to honor the postdate request. A check presented will usually be cashed or deposited, regardless of a date in the future; however, most people don’t operate that way and are honorable. They had the security of check in hand, waited 30 days, and had full control over depositing it on time. This is usually enough to accomplish your purpose.
TALK to these credit references and tell them you are trying to grow and need to add credit to do so. Most business owners understand this and are willing to help. Don’t tell, ASK them if they can say you have a high line of $ an amount, and pay in terms. That’s it. Get 3. You should be able to accomplish this in 30 minutes.
Don’t overuse these references. Most businesses need 2 to 5 lines of credit to do over 80% of their buying. Take them in order of largest line required and most valuable service/product to your business.
A few other tricks of the trade.
TIP 1 – Also, when establishing new credit, after or when you are securing the credit with a new source, let them know that the purpose is to accommodate growth. This tells them that they will be getting new business. Provide them with a reason to benefit by helping you. Ask them if after a month or two, if you can add them to your list of credit references once you have earned that right by paying on time. Also don’t be afraid to ask for 60-day terms when establishing new credit. You can then have room to negotiate down to 30. You may be surprised if you can justify it, that you could get better terms. The tariffs are a good reason you might be in a position to require better terms.
TIP 2 – If you have been put on COD or cut off from prior suppliers, tell them that you can’t pay them the old amount unless you do new business which requires inventory. In other words, for every new 1 dollar of new product you agree to give on credit, you are willing to pay them in terms PLUS an extra 10% on top to reduce the old balance. The only thing worse than them not getting paid on the old, is the loss of new business if they KNOW they will be paid.
TIP 3 – I have been successful in getting suppliers who hadn’t been paid to extend new credit to that same customer. How? I assured them they would be paid. Everybody is in business to get new business, they just want to be paid. If you’ve proven that to not be the case for you, they need new assurances. I will offer to provide an invoice for the work performed using the inventory they supplied. Say their bill is 20% of the new bill to your customer, I will let THEIR attorney set up a lock box wherein they get the payment made not to you, but to the lockbox. This is how factoring works. When their attorney receives payment into that lockbox, they give 20% to the supplier and release the remainder to you. VOILA. They are guaranteed payment, and you have new credit terms.
Once you have these new lines of credit, they can be yours for life if you don’t abuse them. That can be millions of dollars’ worth of credit for growth.
This article is intended to provide general information on the subject matter covered and is made available with the understanding that the author is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a qualified professional should be sought.
