Empower Your Business: Business Credit Vs Personal Credit

Alex Erlich, a credit advisor and educator, is joining us today to discuss the ins and outs of what real estate professionals and other companies are struggling with in this current economy.The main focus for today’s conversation is the importance of leveraging business credit vs personal credit. Credit and debt are not equal in any shape or form, but we have to play the game to win it. Knowing the rules of how to play will get you in the best position to win! Whether it’s the credit card game, credit game, or the leverage game, you need to create a leverage profile. Let’s take a closer look to discover what you need to not only establish your company, but ways that can set you up for success.

How to leverage business credit instead of personal credit?

So many people are putting business expenses on their personal credit. Unfortunately that is not as efficient as one might assume. 70-80% of clients are overextended on projects, and have maxed out their credit cards. Thus making it extremely difficult to be approved for additional loans moving forward without further impacting personal credit scores. In order to prevent this landslide, we need to approach business expenses more professionally and keep everything business focused. In doing so, it will prevent further strain on your personal credit, increase eligibility, and create more leverage. What exactly do we mean by leverage? Leverage is how much you are eligible for and what it looks like on paper. Leverage is the King in real estate. Having more leverage allows for more opportunities, not only your business, but for your personal life as well.  

How do we turn the focus from personal to business? 

First and foremost individuals need to acknowledge that they have a business. Surprisingly, many business owners don’t consider themselves to be entrepreneurs. From relators, to contractors, and everyone in between, they typically consider themselves to be employees of the overwriting company. However, this mindset needs to change! They should not only view themselves as entrepreneurs, but also a representation of the brand. Another component that should be evaluated are items on your personal credit that need to be removed. This will in turn prevent you from personal liability as you continue to grow your business.

What is another problem that business owners have to navigate?

The quick and simple answer to this question is social media. The majority of info is on TicTock, Twitter, and even on reals. Even though not all of it is bad information, it’s not always complete information. It is imperative that any information found on social media should be researched further. In regards to credit score expectations, there is a lot of misinformation on the internet as well. Do your research and always seek out support from professionals if you have questions.

Where do you go for correct credit score information?

 MyFico.com is the best place to get not only basic credit score information, but specific scores that can impact you differently depending on what you are needing them for. It can be information overload with 40 scores available, however, by going straight to the source it provides you a cost free and spam free way to gather all of the information you would need to make a financial decision. Ideally you should have a personal credit score of 680 to 720 in order to qualify for various lending options. Ultimately it is better to be at a 720, but how do you get there? Here are the top 4 things you can do to make your personal credit score improve quickly.

First:

Do not open new credit unless you have talked with a professional and they have created a step by step outline. At The Cash Flow Company we can help you apply for a 911 loan instead to take care of the one or two items that are holding you back financially.

Second:

Remove any derogatory information that is on your credit report. Now is the time to see what can be done about it and how to leverage it. Especially if it’s a local bank. Something from three to five years ago that already has a zero balance, should be removed. Be methodical and purposeful.

Third:

Take into account your inquiries. If you have been shopping for money and applying for things, look into a fast inquiry removal. This can make a substantial positive impact on your credit score. If you are using your personal credit to inquire about your business, those should all be disputed as well. 

Fourth and final:

Relationships are your key to a successful business. Determine which companies are having the hardest time or tightening their budget. These are the ones that will leave you behind so they can swim upstream in search of bigger and better clients. By building local, human, real relationships, the more successful you will be.

Personal Relationships

In working with real estate investors, realtors, and contractors, a lot of what we enjoy doing is working human to human. In forming that connection with our clients, we are able to focus on how we can make them better both as a person and as a company. They are all unique and don’t all need the same things. For one client they may need a little rearranging to raise their credit score, while others could require a longer process to get back on the right path.  By forming personal relationships with local banks, you are more likely to be approved for lines of credit, credit cards, or loans that can in turn grow your company. Another benefit to going local is that regional banks or smaller banks, don’t have the same guidelines as the big banks. They can do “make sense deals” when they make sense. 

Getting started is daunting! Here is what you need to get in it to win it.

1. Make sure personal credit is setting you up for success. Identify and separate business credit vs personal credit to get your credit score back on track. 
2. You need to decide what the business is and it’s subcategorization. Banks will look at the NAICS to determine what industry you are in, as well as the subcategorization when you are applying for business funding.
3. How do you select a name for your  business? Will there be a parent company? 
4. Establishing the company properly through the secretary of state, applying for an EIN, applying for a business license, and opening business accounts for expenses. Setting this up correctly will ensure that you are seen as a business not only to lenders, but to clients as well. 
5. Be very clear with your goals! Where do you want to go with your business, how many properties do you need, do you need to buy machinery? All of these goals need to be established first and foremost when starting your business. 

In conclusion, it is important that you are establishing your business correctly from day one and forming positive relationships that will set your business up to win. The faster you can separate your business vs personal credit, the better your personal credit score will be, and will in turn create more leverage for future growth. All the little tricks will get you there! We can help guide you through this process! 

Contact us today to find out more about setting yourself up for success.

Need more tips and tricks? Watch the full interview with Alex Erlich