Using Trade Credit to Finance Your Business Startup

When you think about getting financing for a business startup, you usually think of going to a bank. But a bank may not be the best way to begin setting up your business. Instead, consider a different approach.

David Gass, president and founder of Business Credit Services, advises people starting into business to build more slowly. First, he says, get the business foundation established. Apply for a bank account, choose a type of business entity (LLC or corporation, for example), get a phone, business cards and stationery, and begin to establish business relationships with local suppliers. Then, he advises, work on getting trade credit for equipment, supplies, and inventory. In other words, obtain credit directly from suppliers, like office supply stores, specialty equipment suppliers for your business type, and inventory or aw materials. This "pay as you go" approach is a better way to begin financing your startup than bank financing.

Using trade credit does two things for your new business

• First, it helps you buy the things you need without having to go to a bank and use personal funds as collateral.
  
• Second, and more important, it gives you a business credit rating to use when you need to go to a bank for a loan.

David's company has advised more than 11,000 new business owners using their "four tier financing" plan. They also help people put together business plans and incorporate their businesses. Tomorrow, David's comments on business plans.