HOW TO GET CREDIT FROM A US BANK FOR YOUR US COMPANY
This page is part of our series focusing on USA
So how do you obtain the necessary financial resources?
Traditionally, in the USA, it has been easier than in other countries to obtain credit from a bank. It is not uncommon to have credit lines totaling anything from $ 50,000 to $ 500,000. This is true even for relatively new companies.
What is more you don’t even have to live in the USA. As the owner or manager of your US company you may still be given a bank overdraft facility. That is because it is the US company, as a separate legal entity, which gets the line of credit not you!
On this page
- THE 3 FACTORS THAT GET YOU THAT CREDIT LINE
- Factor 1: Credit Score (weighting: 40%)
- Factor 2: Account sales (weighting: 40%)
- Factor 3: sustainability & substance (weighting: 20%)
- Shop around for credit
- Take matters into your hands
- How do you maintain the overdraft facility
- What if the company fails?
- How we support you
- Frequently Asked Questions about Taxes, Company Formation & Residence in the USA (FAQs)
- Mount Bonnell’s Personalized Guidance through US taxation, company formation and residency
THE 3 FACTORS THAT GET YOU THAT CREDIT LINE
Right from the start, do all you can to ensure that your US company acts and appears in a positive light financially. Companies that have been granted credit facilities on their current accounts act and appear prudent in their dealings.
We think these are the three factors in particular that play a key role in achieving credit in the US. You must pay attention to these factors and take care with them for the first six months after the legal establishment of your US company. Although, these factors are not a full proof test of credit suitability, we feel that tending to them will go a long way to obtaining credit at a bank.
Factor 1: Credit Score (weighting: 40%)
How does a credit score work?
The credit score is a number between 0 and 800 and the higher the score, the better it is. The credit score is awarded by credit agencies. Large companies such as banks, energy companies, telephone companies, insurance companies etc. tabulate their customers’ payment and purchasing behavior to these credit agencies who then calculate a credit score based on that data.
Other parts to the credit score equation include such things as: how punctual you are at paying your bills, what your income is and how much credit can be advanced against that sum, as well as any history of bankruptcies.
DUNS Number: The basis for the credit score of your US company
In the United States even companies get a credit score. What’s known as the DUNS Number is the basis for the credit score of your US company. This is provided by the best-known US corporate credit agency: Dun & Bradstreet (D & B). Once you have set up a US company, you will have assigned automatically a DUNS number from D & B; although sometimes it can take longer. If you are smart you’ll apply for a DUNS number upon opening your US company bank account. For a fee, you can create an account with D & B; this will allow you to monitor your credit score constantly.
How to build your credit score
Starting out in business in the US, the fact is you do not have any US suppliers whose bills you pay and who, crucially, can report that payment behavior to the credit agencies.
So, first off, you have to be proactive in getting contracts from major US companies. This is the only way to build your credit score.
It doesn’t matter whether these contracts involve high or low monthly amounts. Any contracts paid on a regular basis have a positive effect on your credit score. Some examples could include: a US mobile phone; business insurance, and office supplies (paper and stationary).
Factor 2: Account sales (weighting: 40%)
Because just as important as your credit score is your company’s volume sales.
Turnover is more important to the bank than profits. When applying for a credit line, you must convince the bank that your company is generating an attractive income. Therefore, it doesn’t matter if you are using most of your income to fund payments to suppliers.
Every business is different, but if you’re serious about a bank overdraft then something in the region of $20,000 per month should be circulating through the company’s account.
Of course, this figure can be generated via another company owned by you.
There are even stories of some business owners who have “recycled” the same $20,000 between the same four companies! Of course, we cannot advise you on that sort of thing, but the principle remains, namely, that money needs to be coming into your business to get your credit rating up.
And, when starting out, one thing you must never do is to let your business account go overdrawn inadvertently – if you can at all help it – and this is the case even when your bank allows for such an eventuality.
Ultimately, to sum up, it seems that any bank overdraft facility granted will be in direct proportion to your company’s turnover. The more revenue you show on the company account, the higher the bank’s credit line that will be granted to you later.
Factor 3: sustainability & substance (weighting: 20%)
This could be something as vague as the nature of the business and the industry that your company is in.
With banks, we’ve found the same questions coming up:
How risky is your business?
Does it have recurring sales?
Is your line of work relatively transparent and easy for others to understand?
Banks like to understand what it is your company does so as to understand what you want to use any line of credit for.
Banks will want to see a business plan. The better that plan looks, the more credible the thinking behind it also looks, and, thus, the more successful your application will be.
Inevitably, as a foreigner, any US bank will pay particular attention to how much business “substance” you have in the US – by that we mean does your business look and feel like it is real and ongoing, with an office address and people working for it. The more substance there is to your business operation the greater the potential for a higher credit line.
Tax returns also play a part in getting that credit line.
Compared to the credit score and account sales mentioned earlier, these “softer” factors tend to be viewed as of lesser importance when a bank is deciding about whether to grant a credit line. As with most people, when it comes to business, understandably, the bank likes to rely on hard facts.
In our experience, however, in the US, “soft” factors do play a part in the eventual level of credit granted to companies.
Shop Around for Credit
There are many small US banks. They are often more flexible in lending than their larger competitors. You should keep these smaller banks in mind when thinking about credit.
And remember, when it comes to sourcing credit from a US bank then Mount Bonnell can assist you. We can research options for you, and arrange and hold any preliminary discussions with US banks.
TAKE MATTERS INTO YOUR HANDS
The banker will not mind that you are a foreigner or that you do not speak perfect English. On the contrary, foreign entrepreneurs are often popular and respected in the US.
However, we can’t stress enough that your personal conversation with a banker is crucial, and, therefore, you should take it seriously and prepare well in advance for it.
MAINTAINING THE OVERDRAFT FACILITY
This will mean sending a business evaluation to the bank on a quarterly basis. And during this reporting period, you must ensure that your business operates to the level expected by the bank so as to prevent any credit line from being cut.
WHAT IF THE COMPANY FAILS?
The US business mentality, unlike parts of Europe, is one where failure is not seen as the end of the world. That said, after any business failure, it is beholding upon those involved in to ensure that everything is done as quickly as possible so that a new beginning can be made.
As a shareholder and managing director of your US company, if bankruptcy does happen, you have few personal consequences to fear, especially if you do not live in the USA. Of course, this is on the assumption that you did not willfully mislead the banks when asking for credit. If this was otherwise, and can be shown to be so, then, as in Europe, you could end up in the criminal courts.
HOW WE SUPPORT YOU
What we have described above is based solely on our experience. At no time should it be taken as a promise or guarantee that your US company will be granted a credit line from a US bank.
That said we are happy to assist you in whatever way we can, especially with any questions you may have in regard to your application for current account credit in the US. As stated earlier, we are even prepared to conduct preliminary discussions with banks on your behalf and to assist in all aspects of preparation for any subsequent meetings.
MOUNT BONNELL’S PERSONALISED GUIDANCE THROUGH US TAXATION, COMPANY FORMATION AND RESIDENCY
If you are planning a project in the US you will probably have begun already your research into the business framework Stateside. Available on line on this, as on most subjects, there is a wealth of information.
And that can be the problem.
Saturation point in terms of information is not the same as being informed. And there is no getting away from it: tax, whether locally or internationally, is never less than complex.
In addition, most locally based US accountants know little of the international tax contexts from which you have come and for which you need answers.
To move beyond this impasse, we now offer the Mount Bonnell one-hour telephone advice session. All the questions you have on taxation, incorporation, and residency in the US and then some.
This conversation can be about specific, more technical, issues, whether it is US tax or corporation, or on the subject of LLCs, or maybe it’s just a need to discuss various strategic options now under consideration. Whatever it is, we can help you by talking matters through with some expert advice that takes you towards a satisfactory conclusion.