Can I get a business loan by forming a LLC?
Let me hit it out of the park right away. Yes, you can get a business loan by building business credit if you are a sole proprietor or operate as a partnership.
However, and this is the key, if you do business as a separate legal entity, it allows you to fully separate your personal credit from your business credit. And that’s it!
So what’s the difference. Well it’s like this; if you truly want to separate your business credit from your personal credit your business MUST be a separate legal entity. Look at it this way. Unless you have a Corporation or LLC you are “in” business but you are not “a business.” I hope this makes sense.
So should you hit the panic button if you’re not a Corporation or LLC? Absolutely not. In fact you can continue with the process of building business credit. You just need to work on setting yourself up properly.
Just remember, unless you’re set up properly you can never truly separate the personal credit from the business credit. So what that means to you is that everything is still on “you”. So every business loan puts your personal assets and credit ratings at risk.
Remember, everything is on you personally unless your business is a legal entity all by itself.
Now that we know the importance of separating the personal from business credit through the use of a properly structured entity, we need to look at the business name. Yup, details, details.
Believe it or not your business address is an important piece to the puzzle. Maybe you work out of your home and are wondering if that’s OK. It sure is. Just remember that running a home based business may limit your access to certain vendors or lenders as well as getting approved for a business loan.
If you have a DBA – caution!!!
Filing a DBA for your corporation or LLC can create a real challenge if you’re not careful. It can cause multiple credit files to be opened. An example would be if you open a business bank account and it’s Harry’s Milk Toast, LLC but you open a vendor account as Harry’s Milk Toast, LLC, DBA Harry’s Cafe and yet another account just as Harry’s Cafe, you could possibly have 3 files and a big mess on your hands. Just so yourself a favor. Be consistent on everything. Utility bills, vendors and credit , banking, etc.
If you find out that you have a mess now, take the time to straighten it all out. Trust me, if right before the funding of your small business loan, Sunwise Capital finds out that there is a difference between your state listing and your bank account you will not receive your funds. Period the end. To save time do it right to start.
Did you know you need a dedicated business phone number that is listed with 411 directory? And it must be under the business name? And you should NEVER use your home phone number? And it needs to be answered with the name of your business and not the cute recording of your kid saying “You’re not in”?
Guess what? Virtually all lenders check with the 411 directory. Here’s a helpful hint. Do you want to guarantee a consistent 411 listing? Make sure one of your business phone numbers should be with a local carrier. Just make sure they add your business to their proprietary 411 directory.
And while you’re at it add a Fax line. Faxes in the past? Not true when it comes to lenders and credit providers.. Guess how you’ll get most of your credit applications and agreements?
Do you want to know one of the biggest mistakes we find when a business owner tries to establish business credit or apply for a business loan or working capital. The business address on your business license does not match the physical address. OOOPs! Or the business owner didn’t realize that they actually needed a business license in their city state or county.
And while you’re at it make sure you have an EIN (Employer Identification Number). Use it to open your bank account and to build your business credit profile. You may need a new one if your business is subject to a bankruptcy, you form a new corporation or change the name, you take in new partners and operate as a partnership or you purchase, inherit or plan on operating an existing business.
Did you know that the date you open your business bank account is the “real” date your business started. Can you believe that? It’s true. Incorporate 10 years ago but open your bank account yesterday and your business is considered one day old. Most banks are going to require the EIN and a copy of the business certificate from your secretary of state, so please be prepared.
And last but not least in this section is that you must verify how your business is listed. Make sure everyone has the exact same information. Business name, address, phone number, etc. Everything with Everyone. Good luck and in the next step we will start looking at what makes you a good candidate for funding by the lending community.