The US Census Bureau counted a record 5.4 million new business filings throughout the country last year. Thanks to Covid, millions of Americans have decided to become business owners in the past couple of years alone.
Now comes the hard part. With stimulus checks a distant memory, inflation raging, and personal savings back to pre-pandemic levels, financing that new venture will require some creative thinking.
But there is hope, according to credit expert and JMS Consulting Firm founder Keritan Shelby. He says that even first-time entrepreneurs should not dismiss the possibility of getting business credit that can provide seed capital and financial flexibility down the road.
“Many new business owners can absolutely get business credit accounts without using their personal credit,” Shelby says, “but be prepared for lenders to take a closer look than they did during Covid, when the Small Business Administration was dishing out those PPP (payroll protection program) loans at warp speed.” At minimum, a legal name, physical address, email, NAICS/SIC code, and dedicated phone number will be needed to obtain a DUNS number, which is essentially the equivalent of a FICO score for companies. As with FICO, a higher DUNS score means that a business can acquire more credit on better terms, although there are some important differences.
Rather than primarily look at past credit history, for example, DUNS will take into account variables like a company’s online presence. “Even better,” Shelby says, “is that applying for business credit should not affect your personal credit score. Unless you sign a personal guarantee, it is the business — not you — that will be responsible for any debts incurred.”
In addition to protecting your personal credit, using business credit has two more important benefits. First, business accounts will often carry higher lines of credit and be reviewed more frequently than, for instance, a personal credit card. As your business grows, its credit should grow right alongside it.
The second additional benefit comes in the form of rewards points. As Shelby explains, business owners are free to use rewards like credit card miles for free or upgraded flights as well as cash back rewards. He even personally recommends the AMEX Platinum card for travelers. “That one comes with Free Clear and TSA PreCheck, which is a must-have given the long lines at airports these days,” he says, “but there are cards for just about any kind of business need. Some will offer better deals on foreign currency exchange, for example, or online shopping discounts, so it’s best to do your research before choosing the best card for your particular needs.”
Rewards from business credit cards are typically too small to trigger tax consequences. Nevertheless, Shelby mentions that it’s always a good idea to talk to your accountant if the points stack up, particularly if you’re using them for personal items like vacations.
Of course, many entrepreneurs — especially new ones — may find the idea of a vacation laughable as they work 24/7 to keep their business growing. The Great Resignation has many business owners filling in for employees on the front lines, which means less time to manage things like cash flow. This reality, Shelby says, makes business credit even more important right now.
“You can’t scale most businesses without capital,” he observes. “Whether you are hiring more people or constantly dialing up your cash needs, the business’s growth will be limited by the amount of readily available capital. Now, we’re dealing with frozen supply chains, which means that some businesses are paying for items months before they can sell them. The simple truth is that, if you can conserve your cash by using business credit, you can grow your business faster — or even just tread water until things get back to normal.”