Published By Janet Gershen-Siegel at January 7th, 2018
When you build business credit, it means that your small business acquires opportunities you never considered you would, making it easier to succeed. Build business credit the right way from the start and eliminate obstacles to your success.
Company credit is credit in a company’s name. It doesn’t tie to an entrepreneur’s consumer credit, not even when the owner is a sole proprietor and the solitary employee of the company.
Because of this, a business owner’s business and individual credit scores can be very different.
Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startups can do this. Heading to a bank for a business loan can be a recipe for disappointment. But building company credit, when done right, is a plan for success.
Individual credit scores depend upon payments but also various other factors like credit utilization percentages.
But for small business credit, the scores truly merely depend on whether a small business pays its debts in a timely manner.
Building business credit is a process, and it does not occur automatically. A small business has to actively work to establish business credit.
However, it can be done readily and quickly, and it is much quicker than building consumer credit scores.
Merchants are a big part of this process.
Carrying out the steps out of sequence will lead to repetitive rejections.
A company has to be Fundable to loan providers and merchants.
That’s why, a business will need a professional-looking web site and e-mail address. And it needs to have website hosting from a merchant like GoDaddy.
And, company telephone numbers must have a listing on ListYourself.net.
Likewise, the business telephone number should be toll-free (800 exchange or the like).
A small business will also need a bank account dedicated strictly to it, and it needs to have every one of the licenses essential for running.
These licenses all have to be in the perfect, appropriate name of the business. And they must have the same small business address and telephone numbers.
So note, 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 free of charge. Select a business entity like corporation, LLC, etc.
A company can start off as a sole proprietor. But they should switch to a kind 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 involves tax obligations and liability in the event of litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. Nobody else is responsible.
Start 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 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 sites for the small business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
This way, Experian and Equifax will have activity to report on.
First you ought to build trade lines that report. This is also referred to 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 start to get more credit.
These types of accounts often tend to be for the things bought all the time, like marketing materials, outdoor work wear, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are often Net 30, rather than revolving.
So, if you get an approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid completely within 60 days. Compared to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To start your business credit profile the proper way, you ought to get approval for vendor accounts that report to the business credit reporting agencies. Once that’s done, you can then make use of the credit.
Then repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with marginal effort. You also want 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.
Know what is happening with your credit. Make certain it is being reported and fix any inaccuracies ASAP. Get in the practice of checking credit reports. Dig into the specifics, not just the scores.
Update the details if there are mistakes or the info is incomplete.
So, what’s all this monitoring for? It’s to contest any problems in your records. Mistakes in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.
Disputing credit report inaccuracies commonly means you specifically detail any charges you contest.
Always use credit sensibly! Never borrow beyond what you can pay back. Track balances and deadlines for repayments. Paying promptly and completely will do more to boost business credit scores than almost anything else.
Establishing company credit pays. Excellent business credit scores help a small business get loans. Your credit issuer knows the company can pay its debts. They recognize the small business is bona fide.
The company’s EIN connects to high scores and credit issuers won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your company for years to come. Learn more here and get started toward growing small business credit.