Published By Janet Gershen-Siegel at December 15th, 2017
When you build corporate credit, it means that your company gets opportunities you never considered you would. You can get all new equipment, bid on buildings, and cover the company payroll. And you can do so even when times are a bit lean. This is particularly helpful in seasonal firms. Those are where you can go for months with only nominal sales.
Given this, you really should work on how to build corporate credit. Improve and maintain your scores and you will have these opportunities. Do not, and either you do not get these business opportunities, or they will cost you a lot more. And no business owner wants that. You need to understand what affects your corporate credit before you can make it better.
Corporate credit is credit in a corporation’s name. It doesn’t link to an entrepreneur’s consumer credit, not even if the owner is a sole proprietor and the only employee of the company.
As a result, an entrepreneur’s business and personal credit scores can be very different.
Because company credit is distinct from individual, it helps to secure a business owner’s personal assets, in the event of a lawsuit or business bankruptcy.
Also, with two distinct credit scores, a business owner can get two separate cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startup companies can do this. Heading to a bank for a business loan can be a recipe for disappointment. But when you build corporate credit correctly, it is a plan for success.
Personal credit scores depend on payments but also other elements like credit utilization percentages.
But for corporate credit, the scores truly only depend on if a business pays its debts punctually.
Establishing corporate credit is a process, and it does not occur without effort. A company must actively work to establish company credit.
That being said, it can be done easily and quickly, and it is much speedier than building personal credit scores.
Merchants are a big part of this process.
Undertaking the steps out of sequence will lead to repetitive denials. Nobody can start at the top with corporate credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.
A small business needs to be fundable to lending institutions and vendors.
Due to this fact, a business will need a professional-looking web site and email address. And it needs to have website hosting bought from a vendor like GoDaddy.
Also, company phone and fax numbers ought to have a listing on 411.com.
Likewise, the company telephone number should be toll-free (800 exchange or comparable).
A business will also need a bank account devoted strictly to it, and it has to have every one of the licenses necessary for running.
These licenses all must be in the specific, appropriate name of the business. And they must have the same company address and telephone numbers.
So keep in mind, that this means not just state licenses, but potentially also city licenses.
Learn more here and start to build corporate credit.
Visit the IRS web site and acquire an EIN for the business. They’re totally free. Choose a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they will more than likely wish to switch to a type of corporation or an LLC.
This is in order to diminish risk. And it will optimize tax benefits.
A business entity will matter when it involves taxes and liability in the event of a lawsuit. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. Nobody else is responsible.
If you run a business as a sole proprietor, then at 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. Consequently, you can wind up being personally accountable for all small business debts.
Additionally, according to the Internal Revenue Service, with this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 probability for corporations! Prevent confusion and significantly decrease the chances of an IRS audit simultaneously.
Begin at the D&B web site and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a company in 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 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.
By doing so, Experian and Equifax will have activity to report on.
First you ought to build trade lines that report. This is also known as the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a corporate credit score.
And with an established corporate credit profile and score you can start to acquire credit in the retail and cash credit tiers.
These types of accounts tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first of all, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are generally Net 30, rather than revolving.
So, 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.
Learn more here and start to build corporate credit.
Net 30 accounts must be paid in full within 30 days. 60 accounts have to be paid fully within 60 days. Unlike 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 corporate credit profile the proper way, you should 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 pay back 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 a minimum of effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than once to these vendors. So, this is to prove you are dependable and will pay promptly.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then move to the retail credit tier. These are service providers which include Office Depot and Staples.
Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the company’s EIN on these credit applications.
One example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a D-U-N-S and a PAYDEX score of 78 or more.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to buy fuel, and to fix, and take care of vehicles. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the company’s EIN.
One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or more and a 411 small business telephone listing.
Shell may say they want a particular amount of time in business or profits. But if you already have enough vendor accounts, that won’t be necessary. And you can still get approval.
Learn more here and start to build corporate credit.
Have you been responsibly managing the credit you’ve up to this point? Then move onto the cash credit tier. These are businesses like Visa and MasterCard. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.
One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.
Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).
Also, they want you to have an established business.
These are service providers such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are normally MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.
Know what is happening with your credit. Make sure it is being reported and deal with any mistakes ASAP. Get in the habit of checking credit reports and digging into the specifics, and not just the scores.
We can help you monitor corporate credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: www.creditsuite.com/monitoring.
Update the relevant information if there are mistakes or the data is incomplete.
So, what’s all this monitoring for? It’s to challenge any problems in your records. Mistakes in your corporate credit report(s) can be taken care of. But the CRAs often want you to dispute in a particular way.
Disputing credit report errors generally means you send a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always send copies and retain the original copies.
Fixing credit report errors also means you precisely itemize any charges you contest. Make your dispute letter as clear as possible. Be specific about the issues with your report. Use certified mail so that you will have proof that you sent in your dispute.
Always use credit sensibly! Don’t borrow beyond what you can pay back. Keep track of balances and deadlines for repayments. Paying off on schedule and fully will do more to raise corporate credit scores than virtually anything else.
Build corporate credit – it pays. Great corporate credit scores help a business get loans. Your lender knows the company can pay its financial obligations. They understand the business is for real.
The business’s EIN links to high scores and lending institutions won’t feel the need to demand a personal guarantee.
Corporate credit is an asset which can help your business in years to come.