Some Things Get Better with Age
You’re feeling good, you’ve rolled out the business plan, you’re partners are in with you, and everybody’s jazzed because it’s time to incorporate and move into the next phase of owning a business. But wait a minute, your accountant advises you that based on your company’s current credit rating you’re not going to be able to secure the type of loan you’re going to need to get things up and running.
“Why not?” you ask.
“Well, in order to get the kind of loan you’re looking to secure from the bank, they want to make sure that your company has more of a history of good credit.”
“But we’re brand new. What do we do?”
The answer is: don’t panic.
One option that is worth investigating could be investing in the purchase of a “Shelf Corporation”. Also known as an “Aged Corporation”, a shelf corporation is a corporation that has been around for a while, but just hasn’t been doing very much of anything.
How it Works – The Delicate Art of Credit Chemistry
To say that a shelf corporation has been doing nothing would be misleading. Like a fine wine it has spent time in the cellar patiently waiting for its moment to be corked. Most shelf corporations were designed and setup with the sole purpose of being launched at a later date and what transpires between bottling and the moment it is poured can be profound when it comes to a balance sheet.
First, by purchasing a shelf corporation, the relationship your company establishes with the bank is like one between good old friends. Right away they can see that your company has been around for a while and that you have a good credit score which makes them more trusting of your ability to pay your loan.
Second, much of what was required to start a company has already been taken care of. All of the basic ingredients have been blended together and it’s simply a matter of customizing them to your needs. A lot of the red tape that can potentially delay a start up is already taken care of.
Third, even if you are effectively getting your business off the ground today, depending on the shelf company you buy, you can literally say you’ve been in business for as long as the business has been in existence. Contracts that you may wish to bid on may require that a bidding company need have been in business for a minimum amount of time which would have otherwise have excluded you from bidding on the contract. With the years of experience you’ve gained through the shelf company, no one need be the wiser.
Finally, you can even merge your existing company with your shelf company as a means to facilitate building business credit.
Things to Consider
Remember, a lot of the heavy lifting has already been done for you and there’s a cost that comes with that. Like a good scotch, the price goes up the longer it’s aged. Sure the cost of the shelf company may be higher, but it also has a longer established history and that can go a long way.
Also keep in mind that before it becomes yours, a shelf company is literally a product on a shelf. There are lots to choose from so it is still important to do your research and find one that’s right for you. Not all shelf companies are created equal either. It’s important to get detailed information about the shelf company before you buy one.
Many companies that offer standard business registration and incorporation services also offer shelf corporations as well, and can help guide you through the process of determining what’s right for you.
For more information on buying a shelf company, please visit CorporationCentre.ca.