Getting a loan for an LLC and building corporate credit
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Member since 2008 · 20 posts · 10 votes
21yreprinted with permission from John michael
Whenever possible, try to establish credit lines that will grow along with the business. For example, in setting up a credit line with your bank, try to get a credit line based on a percentage of your receivables, rather than a constant, static amounts. Chances are your credit line will be reviewed by your bank annually and will be subject to ceilings and restrictions, but try to build as much flexibility into your borrowing relationships as you can. This will leave you better equipped to finance fast growth. Also try to establish credit lines with your trade suppliers that grow along with your business as well.
Establishing the business's credit should be started before the company needs it. No lending institution wants to lend money to a business in need of cash flow. The business can start out using the owner's or officer's credit to gain approvals under the business name, but as the business grows it should start to establish it's own credit history and credit profile in order to take on business credit of it's own. This is possible with a Corporation or Limited Liability Company (LLC) using the corporation tax identification number
When officers and owners use their own personal credit profiles to obtain credit for the business, they risk the chance of lowering their own personal credit scores. There are two reasons business owners should try not to use their personal guarantee on business credit. First, the individual signer is liable if the business cannot make the payments and second the credit obtained for the business can affect the person's personal credit score.
Keep in mind, your personal credit score is based on several factors, including available credit, the amounts of available credit used, late payments, and much more.
Obtaining credit for a business is a process that should be established over time. The older the business the more options the business will have to build credit and obtain loans and leases without the use of personal guarantees. It is not easy to do this, but yet it is not impossible. The first step is to start building the business credit today.
A credit score is built by having lines of credit, credit accounts and trade references that report to the business credit bureaus. For most businesses it's very difficult to find a business willing to grant credit with no personal guarantee and without any previous credit history. If you have your own trade references, you should work with them to build the score. However most businesses need additional trade references that will grant credit and report to the credit agencies.
Some helpful business sites on building business credit:
* Wells Fargo Small Business - Loans and Lines - Comparison Chart
* Report on the Role and Function of Credit Rating Agencies
* FTC FACTS
* D&B Small Business Solutions
Some of my students have use this site with some luck (I know nothing about the service)
Business cash advance - http://www.amerimerchantcapital.com
Some other help tools
* National Business Association http://www.nationalbusiness.org
* Small Business Information Center/Research http://sbdcnet.utsa.edu/SBIC/industry.htm
* Urban Redevelopment Authority http://www.ura.gov.sg/
* Black Enterprise Online http://www.blackenterprise.com
* National Black Business Trade Association http://www.nbbta.org/
* National Black Chamber of Commerce Inc. http://www.nationalbcc.org
* Small Business Information Center/Franchise http://sbdcnet.utsa.edu/SBIC/franchise.htm
* Unites States Hispanic Chamber of Commerce http://www.ushcc.com
* KeyBank's Website Women Focus Section http://www.key.com/women
* National Education Center for Women in Busines http://www.e-magnify.com
41 Replies
- Member since 2008 · 1 post · 0 votes18y
Originally posted by "winston":
If your trying use a corporation or LLC in order to obtain business lines of credit and your corporation or LLC is not at least 2 years old you will need to purchase an aged shelf corporation. Right now the only state that will work using aged shelf corporations is Wyoming. New corporations will limit your ability to get the most in business credit lines. The real benefit of using business lines instead of personal is to keep you from having a high personal dti. Since the business lines don't show up on your personal credit report.Hello everyone. I'm new to all this, and I was wondering...
Has anyone purchased an aged shelf corporation to get unsecured financing ($300k) to purchase an existing business? If so, with whom? Any information is greatly appreciated. - Real Estate Investor · Las Vegas, NV · Member since 2008 · 1 post · 0 votes18y
Originally posted by "REI":
Originally posted by "moneybully":
My first tip is to forget what anyone has said about registering corps in states that aren't your own...you still have to pay taxes wherever you registerMany gurus do seem to forget this point when they talk about where to set up an LLC.
John Corey
Now how about if you set up your LLC or Corp in a state that has no state tax. What if you were to set up a business bank account in that state, then have your monies sent to that account and deposited. You now can access this money, w/o the state tax. Is this a plausible scenario??
- Investor · Houston, TX · Member since 2008 · 257 posts · 58 votes18y
This is a good subject, I just formed my LLC, I already have a business line credit luckily.
I would suggest just open a business line of credit before the LLC with a compnay that shares your SSN with your Employess ID from the IRS, then move everything over to your LLC 100% after it is started.
Then again I think 20K is a great line of credit. So who am I.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes18y
Now how about if you set up your LLC or Corp in a state that has no state tax. What if you were to set up a business bank account in that state, then have your monies sent to that account and deposited. You now can access this money, w/o the state tax. Is this a plausible scenario??
No, not true. You can not avoid paying taxes by setting up an LLC in a no state tax State such as Nevada or Texas. In almost all cases, you should set up the entity in the state you are doing business in. Just because you have an entity in Texas, and you make all the deposits there, does not relieve you from paying the state taxes in the state you reside in.
Remeber that LLC's are flow-through entities which pass any income/loss to the owner's or partner's personal tax return(s). Check out "Lawyers are Liars" by Mark J. Kohler - Protecting your assets. It is a great read written in terms easily understood and gives the real truth about this and many other topics. I highly recommend it!
As far as the last question on how to open credit for a new LLC/entity, you will be required by the lender to give a personal guarantee for the loan/loc. Once business credit has been established over time, the entity will have the ability to obtain financing on it's own.
- Member since 2009 · 1 post · 0 votes17y
- Real Estate Investor · sydney, nsw · Member since 2009 · 74 posts · 7 votes17y
hi all
do you have asystem to buy old llc companis that are over 2 years old and then the company can be reopened and restart
we can do that with our liquidated companies is there any thing like that in the US
if you buy an asset with a llc and then payout the llc debt and re start the llc does the credit start again or is there platforms so where it ended it restarts
I understand llc just working out how you turbo charge the credit rating for a llc
also can you have allc in say a tax free area and that own a llc in the are to invest so you have what we call a master trust and then trust under
in this case a llc and small llc under.
apart from the paperwork whats the difference of a single llc and say a 5 person llc ( apart from 5 lots of paperwork)
and do most people hold in there own name or llc
we usually hold in silo companies which is the same as your llc
I am interested in llc as it seem sthey are the main corporate entity to hold small bundles or packages of housing is this correct - Real Estate Investor · Fresno, CA · Member since 2009 · 3 posts · 0 votes17y
There are a lot of Lenders that use corporate credit. One thing to keep in mind is that in the current Real Estate Market Lenders are primarily focused on the value, location, and cash flow of the real estate. In other words regardless of corporate credit or how strong you are personally, if the property isn't strong you can have the best credit in the world and it won't matter.
The best idea for getting corporate credit is getting aged credit. A great resource that I found really helpful was
[LINK RMEOVED]
Best of Luck!
- Developer · Corona, CA · Member since 2011 · 9 posts · 3 votes15y
Great info. Thanks!
- Wholesaler · Scottsdale, AZ · Member since 2011 · 73 posts · 17 votes15y
wow ! Great Info !
- 15yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
I dont mean to sound like a dream crusher but the reality of you getting financing conventional from a bank for your LLC is next to impossible. Look at it from the banks perspective, you form an LLC, you buy a property, things go bad and you let the home get foreclosed and the bank has nothing to go after except an LLC? Think about it!!! In order for any bank to really consider it you would have to have a ton of money in the LLC, and it would need to be very established and most regular investors will not be able to meet either of these criteria. I have access to private 50% down financing that you can purchase in your LLC, no limit and non recourse. You need to find companies like this. Good luck
Curt Davis - KAIZEN Realty538 Reviews - Telford, PA · Member since 2012 · 1 post · 1 vote14y
Jeff & Wiil - thanks for the great info regarding llc's - I'm new to BP and a novice investor. I had been questioning my decision to register my llc in the state where I anticipate doing business vs "tax free" states. I was also looking for ways to shelter income from the new business- I think the solo 401k is a great vehicle ; however this option is not available to me because I already max out my 401k @ work. Any other thoughts?
- Member since 2011 · 2 posts · 0 votes13y
@Dave. I'm in the same pickle and was doing some research on this. My understanding is that if you are an employee of a 2nd company, that 2nd company can allow you to also have a 401k and max out to 17k I think this year in each. You can keep doing this until you hit a total of 50k. (This is what I understand and still researching so take it with a grain of salt)
- 13ySteven Hamilton IIPro MemberAccountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
@atul,
This limit it for employee contributions. Combined you max is 17500 in 2013.
- Engineer · Wichita, KS · Member since 2012 · 396 posts · 36 votes13y
Interesting thread I been looking at this lately. I agree and from what I found trying it's next to impossible to find a LLC bank reporting credit line. Too risky for banks and I think that has to do with piercing the corporate veil, difficulty with creditors getting charging orders and/or foreclosing on a member(s) interest as states laws allow. It can be very costly or impossible in some states because they can only attach to future dividends owners can cease or other members may co-own. So the easy answer is have the LLC member secure the financing personally which is indirectly a conflict of the LLCs interest and a paradox to protect personal assets.
What I am trying is working with local credit unions I have had long standing personal accounts with to add my LLC as a authorized user. That way it does not affect my credit score by new credit(DTI) and I hope to report to my EIN to build credit. One banker told me the reporting agency's do a poor job of reporting small businesses.
- Member since 2019 · 1 post · 0 votes7y
I've been thinking about starting an LLC to invest, but I want to be able to build credit history. Would co-signing a small loan help build credit for the LLC?
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