Published By Janet Gershen-Siegel at October 9th, 2019
We can show you the best way to build business credit! Get the kind of business funding that can take your business to new heights!
Small business credit is credit in a business’s name. It doesn’t link to a business owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the small business.
Accordingly, a business owner’s business and individual credit scores can be very different.
Because business credit is distinct from consumer, it helps to secure a business owner’s personal assets, in the event of a lawsuit or business bankruptcy.
Also, with two separate credit scores, a business owner can get two different cards from the same merchant. This effectively doubles buying power.
Another benefit is that even start-ups can do this. Heading to a bank for a business loan can be a recipe for frustration. But building company credit, when done the right way, is a plan for success.
Individual credit scores rely on payments but also various other factors like credit usage percentages.
But for company credit, the scores actually just hinge on whether a company pays its debts on a timely basis.
Building business credit is a process, and it does not occur automatically. A business will need to actively work to build company credit.
Nonetheless, it can be done easily and quickly, and it is much speedier than building consumer credit scores.
Merchants are a big aspect of this process.
Undertaking the steps out of order will lead to repetitive rejections. Nobody can start at the top with business credit.
A company must be Fundable to credit issuers and vendors.
Therefore, a company will need a professional-looking web site and email address. And it needs to have site hosting bought from a vendor like GoDaddy.
Also, business telephone numbers must have a listing on ListYourself.net.
Also, the business telephone number should be toll-free (800 exchange or comparable).
A business will also need a bank account dedicated strictly to it, and it needs to have all of the licenses essential for operation.
These licenses all have to be in the exact, appropriate name of the company. And they need to have the same business address and telephone numbers.
So bear in mind, that this means not just state licenses, but possibly also city licenses.
Visit the IRS website and get an EIN for the small business. They’re totally free. Select a business entity such as corporation, LLC, etc.
A company can begin as a sole proprietor. But they should wish to change to a type of corporation or an LLC.
This is in order to limit risk. And it will optimize tax benefits.
A business entity will matter when it pertains to taxes and liability in case of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. No one else is responsible.
If you operate a business as a sole proprietor, then at the very least be sure to file for a DBA. This is ‘doing business as’ status.
If you do not, then your personal name is the same as the company name. Hence, you can wind up being personally accountable for all small business debts.
But keep one thing in mind. Don’t look at a DBA filing as being anything more than a steppingstone to incorporating.
Begin at the D&B website and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a small business into their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s web sites for the business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.
By doing this, Experian and Equifax will have something to report on.
First you should build trade lines that report. This is also known as vendor credit. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can begin to get more credit.
These kinds of accounts tend to be for the things bought all the time, like marketing materials, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are credit issuers who will give you starter credit when you have none now. Terms are often Net 30, versus revolving.
Hence, if you get approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, like within 30 days on a Net 30 account.
Net 30 accounts have to be paid in full within 30 days. 60 accounts need to be paid in full within 60 days. In comparison with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.
To begin your business credit profile the proper way, you should get approval for vendor accounts that report to the business credit reporting agencies. When that’s done, you can then make use of the credit.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with very little effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 3 of these to move onto the next step. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to a minimum of one of the CRAs, a trade account which does not report can yet be of some worth.
You can always ask non-reporting accounts for trade references. And also credit accounts of any sort will help you to better even out business expenditures, thereby making budgeting less complicated. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make certain it is being reported and deal with any inaccuracies ASAP. Get in the habit of taking a look at credit reports. Dig into the specifics, not just the scores.
Update the data if there are mistakes or the data is incomplete.
So, what’s all this monitoring for? It’s to challenge any inaccuracies in your records. Mistakes in your credit report(s) can be taken care of.
Disputing credit report inaccuracies generally means you precisely itemize any charges you dispute.
Always use credit smartly! Don’t borrow more than what you can pay off. Monitor balances and deadlines for payments. Paying promptly and in full will do more to raise business credit scores than nearly anything else.
Building company credit pays. Good business credit scores help a small business get loans. Your credit issuer knows the small business can pay its financial obligations. They recognize the small business is bona fide.
The business’s EIN links to high scores and lenders won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your company for many years to come. Learn more here and get started toward growing small business credit.