- Hi, Clint Coons here with Anderson Business Advisors,
and in this segment I'm going to discuss building credit
for your limited liability company or corporation.
You know, I run into people a lot at my workshops
that come up to me and they say,
Clint, I've signed up with this credit company
that's going to help me create a business credit profile
for my LLC or my corporation,
and then I'm going to be able to go out there
and buy real estate
and I won't need to sign personally on any of those loans.
And so do you think it's a good idea that I paid them
three, five, $10,000 to do this?
Now, you can probably imagine what my answer might be.
Hell no, I don't think it's a great idea.
Why don't I think it's a great idea?
It's plain and simple.
I've had my business set up for 19 years,
and I've been, you know,
I've found a lot of success in my business.
I've never yet been able to buy a piece of property
where they don't pull my personal credit profile,
even if it's a residential mortgage
that I don't have to sign personally.
Yes, if you're going to go out there
and you're going to obtain a non-recourse mortgage,
granted, in those situations,
you don't have to sign personally,
so it's not an issue.
It has nothing to do with your business credit profile.
But the idea that you're going to create
this credit history for a company,
and I have a credit history of 19 years for my business,
never had a loss,
always been profitable.
That still has never helped me obtain a residential mortgage
and not have to sign personally on it.
So the point is,
is that if you think you're going to build this up
and you're going to be able to buy real estate,
it's not going to happen.
It just won't occur for you.
So this concept that people sell individuals
about building business credit for their LLC,
and I'm probably going to get some hate comments on this,
people that sell it,
that they say Clint doesn't know what he's talking about,
but I challenge you to show me where that ever happens,
'cause I've never seen it
and none of my clients have never been able to do it.
So don't buy it with that in mind
or don't invest into building business credit for your LLC
or your corporation with the idea in mind
that you're going to be able to take down a $200,000 property
and not sign personally.
It's not going to hit your credit profile.
As I stated, the only time that's going to occur
is if you're getting non-recourse financing,
but then again,
they're still going to run your credit
to see if you're credit-worthy
even though they're not going to make you sign personally.
And B, a lot of times with those types of loans,
in order to qualify,
you have to show you're an experienced investor,
and I have those types of loans in my portfolio,
and they want to know, you know,
how many properties I own,
how long I've been investing for,
so they know they're not starting out with someone
that has relatively no experience or low experience
and then their potential loan is going to be in jeopardy
two years down the road
'cause you've mismanaged your properties.
So when it comes to it,
when should you actually consider building business credit?
Well, for trade lines,
and this is where I think it could be beneficial to you.
So if you have a company
and you want to generate trade lines
where you don't have to sign personally,
then it makes a lot of sense to start looking at
building up a credit profile for that business.
So let's say you had a corporation.
This is where I think it would be,
make most beneficial sense for anybody into real estate.
Building up a credit line with, you know,
Home Depot, Lowes, paint companies, other suppliers,
is a great thing to do,
because then again,
it doesn't require you to give a personal guarantee on that.
It goes right to your corporation.
They're not going to look at your credit.
You can maybe go out there and find some loans from,
small loans from institutions
that'll actually give you a business line of credit
that they may not require your personal credit on.
Again, those are harder to obtain.
You better have a good working relationship
with the bank in order to get one of those.
But they're also going to, again,
look at your business credit profile.
So what does it take to set up a business credit profile
and build it?
It doesn't require a lot.
I mean, yes, you can hire someone to help you along
through that process,
and if you're one of those, you're like me,
you'd rather have somebody else do it for you,
great, go ahead and do that.
If you want to do it yourself,
it starts off with getting a DUNS number, right,
for your business.
So once you have your DUNS,
which is Dun & Bradstreet number,
associated with your business,
then you want to start taking out credit cards
in the name of that business.
You want to open up some accounts in the name of that business
to start reporting back to that credit number
so you begin building your overall credit profile
for your company.
When you're doing that, though,
keep in mind that your business
can not be set up in a state that offers anonymity.
That is, you're going to have to be on that company.
So if you have this corporation set up,
don't use Nevada, Delaware, or Wyoming.
Typically if you're, live in, say,
Florida or Texas or Oregon,
set it up there
and your name will be associated with it,
because what they'll do is they'll look back
to the Secretary of State's website
to see if the person who's applying for this
is actually listed as an officer
or director of that company.
Once you've done that and you've started that process,
then it's going to give you the ability then to go out there
and maybe get some larger lines,
not have to sign personally and get your name off there,
so now you'll have access to suppliers,
and that could really benefit you.
But again, this concept of,
I'm going to be able to buy real estate all over the country
and never have to sign personally.
They're just going to look at my company credit profile.
It's not going to work.
It's never happened for me.
It's never happened for my clients.
The only time it sets up that way is if they're using loans
that are structured in a way
where that was never going to be required anyway
and it doesn't matter if you have a DUNS number
or a business credit profile,
you still would've got that loan.
One last thing I'd like to hit on that is that, you know,
when it comes to your business,
something I tell people a lot is
if you have an entity set up here,
what you should do,
let's say this is my corp,
and it doesn't have to be a corporation.
This could be a limited liability company.
I'm just going to use a corp.
If I had this corp here,
you should get some credit cards
in the name of your corporation.
I would get an Amex in the name of my corporation.
I would get a Visa.
A couple companies that I know,
there's Wells Fargo, B of A, Chase,
these three companies,
if you get a, you know,
these are business cards, by the way.
You get a business card in the name of this company.
Now when you apply for the business card,
you're going to have to give 'em your personal credit
and you're going to sign a personal guarantee for these cards,
so that is something you're not going to get away from,
but by taking out the cards in the name of your business,
these companies then that you've taken out these cards
under the name of the business,
they report back to the business
and not to your personal credit.
Now this is important.
You know, in running my business here,
all of the filing fees for our clients
in setting up their LLCs and corporations,
we run on a card that I opened up with Chase
a number of years ago,
and it is my personal credit they use
in order to determine the credit limit on that card.
And so when I needed to extend it from,
I think it was from $75,000 to $125,000,
they actually re-ran my credit.
And so, you know,
I do take that hit when they run the credit.
But each and every month,
let's assume that the balance,
we run $95,000 in filing fees for our clients.
That does not show up on my personal credit.
So when I go in and I apply for a loan,
they don't see that there's this Chase card out there
in the name of my business that is,
I'm a personal guarantee on,
because Chase reports back to the business credit,
not to Clint's credit.
So if you're starting out your business
or maybe you've been in business for a while
and you're using your personal cards, you know,
to pay for things that are business-related, stop,
because that's only hurting your personal credit.
Get out there and get some business cards established
in the name of your corporation
or your limited liability company
and start running those charges on those cards,
not on your personal cards.
They all come with the same bells and whistles, you know,
the points and all that that you can use,
but it'll save your personal credit.
So that's something that I've found.
I haven't, these are the cards, actually,
that I carry.
I don't carry the Wells Fargo,
but I have a B of A Visa, I have a Chase Visa,
and I have an American Express,
and it's really helped me on the personal side
with my personal financing
on doing my own personal real estate deals.
My name's Clint Coons with Anderson Business Advisors.
This is what we talked about was building business credit
for your business.
(mid-tempo piano music)