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Published By Faith Stewart at September 11th, 2019
The beginning is the best place to start. Business credit starts with business trade lines.
Everything has to start somewhere, with something. A flower starts with a seed. A book starts with the first letter typed, a house begins with the first nail hammered, and a move begins with the director’s word. When it comes to business credit, it all starts with business trade lines.
You have heard the adage you have to have money to make money. You have probably heard you have to have credit to get credit. While both of these are true to a point, seemingly catching us in a vicious circle, it isn’t entirely true with business credit.
A circle has no clear beginning. Business credit however, does. Just not very many people know about it, and it can be difficult to find. We know the secret though, and we are willing to share.
Of course, we all know that a lot of work goes in a house, a book, a garden, and a movie before that actual first nail, letter, seed, or director’s word. This prep work lays as solid foundation for the final masterpiece. There is a way to lay a solid foundation for business credit as well, before you even consider looking into business trade lines.
Research is how a book or movie starts, and any construction starts with clearing the area and dirt work. A garden spot must be tilled and fertilized before seeds can be planted. Something similar is necessary to establish and build business credit. You have to build a solid foundation for that credit to sit on. Now, that foundation is not necessarily your business. Your business and your business credit will grow together. You can start the prep work at the same time you are starting your business.
To be clear, if your business is already up and running you can still establish business credit. The foundation can still be built. In this way it is different than a building or a book. However, as with any first steps, it is much easier to take them in the beginning.
Before you consider business trade lines, you need to consider how your business is set up. For many new business owners, starting a business just kind of happens. You have something you do that you love, and you decide its time to use it to make money. You may find a location or start from your home. Likely you simply mingle funds in your personal bank account. You have a business name but the business address, email, and phone number are all the same as your personal contact information. It is sort of a natural progression.
If you want to establish business credit, you have to be purposeful to set up your business separate from yourself. This means doing a few things differently.
First, you have to incorporate. Running as a DBA, sole proprietorship, or partnership really won’t cut it. You can choose from running as a corporation, S-corp, or LLC based on your specific needs, but it needs to be one of these three. Each one comes associated with a different cost and varying levels of protection, but each will serve the purpose of separating your business from yourself.
Next, establish separate contact information for your business. You need a business address, email, and phone number that is different from your personal address, email, and phone number. The phone number should be from a toll-free exchange, and your email address should be associated with your professional website. Do not use a free service such as Gmail or Yahoo, and don’t ignore the professional website part. These days, a poorly put together website can ruin a business.
After these first steps are complete you need to play the numbers game. In order to establish business credit, your business has to have two numbers associated with it. The first is an EIN. This is an identifying number for a business, similar to a social security number. You can get one for free on the IRS website.
The next is a DUNS number. This is a number assigned by Dun & Bradstreet, the largest and most commonly used business credit reporting agency. To have a business credit file with them, you must have a DUNS number. You can apply for it for free on their website, but note that they will definitely try to sell you other services. Be strong. The number is free and the other services are not necessary.
Open a separate bank account for your business. This is the account through which all business financial transactions should run. If your business is already up and running, it may take you some time to get everything switched over, but it will be worth it. Not only will is help separate your business from your personal credit, but it will also help tremendously when it is time to do your taxes.
Okay, so these steps ensure that your business is on record as a business at all the right places. As soon as something credit related is reporting, it will have a place to go. How do you get something reported though? You need accounts that will report your on-time payments. Lenders will not even consider extending you credit however, if you don’t have a credit score, or if your credit score is bad. How do you break into the circle?
You can find a tiny crack with business trade lines. These are vendors that sell things you use in the everyday course of business, and they are vital to building business credit. Here’s how it works. They will extend net30 terms on invoices, without a credit check, and then report your invoice payments to the business credit reporting agencies.
For most of these vendors, you will have to make a few initial purchases before they will extent net30 terms. Some want to see a minimum time in business or a certain revenue level as well. We have compiled a list of six easy approval business trade lines to help you get started.
76 is a fleet card that offers net 15 terms. To qualify you must be and entity in good standing with Secretary of State and have the following:
– EIN number with IRS
– Business address- matching everywhere.
– D & B number
– Business License- if applicable
– Separate Business Bank account
– Business Phone Number Listed in 411
Also, they will want your SSN for informational purposes.
The great thing is, if you are not approved based on business credit history, or you have been in business less than 1 year, you may still establish an account with a $500 deposit.
Granger Industrial Supply sells industrial equipment for outdoors as well as standard tools, and more. To gain net 30 approval you will need a business license, a DUNS number, and bank reference among other things. You will also need to make a $50 initial purchase. They report to Dun & Bradstreet.
Another office supply provider, you can order anything from paper to staples, pens to printer ink, and pretty much anything you can think of in between from Summa. They require a $75 initial purchase to report. They report to Equifax.
Uline is the leading distributor of shipping, industrial, and packing materials, as well as industrial and janitorial products. As a general rule, orders ship the same day. You can get approval for net 30 terms when you order, but they credit department may make you do a few pre-paid orders first.
Check out starter vendor Marathon. Marathon Petroleum Company provides transportation fuels, asphalt, and specialty products throughout the United States. Their comprehensive product line supports commercial, industrial, and retail operations. This card reports to Dun & Bradstreet, Experian, and Equifax. Before applying for multiple accounts with WEX Fleet cards, make sure to have enough time in between applying so they don’t red-flag your account for fraud.
To qualify, you need:
Your SSN is required for informational purposes. If concerned they will pull your personal credit talk to their credit department before applying. You can give a $500 deposit instead of using a personal guarantee, if in business less than a year. Apply online. Terms are Net 15.
These business trade lines are all part of the vendor credit tier. After you have a few of these accounts reporting, you can apply for accounts in the retail credit tier, then the fleet credit tier, then the cash credit tier. Here’s what you need to know about each tier, and what happens when you get to the top.
This would be relatable to the editing stage of writing a book or a movie, the weeding stage of planting a garden, or the sheet rock stage of building a house. You’ve done the pre-work of research or preparing the ground, you have planted that first seed, banged out that first word, or hammered that first nail. So now, it is time to move on.
In building business credit, after you have enough business trade lines reporting, this means moving on to store credit. These are credit cards issued by specific retailers such as Amazon, Office Depot, and Best Buy. Apply for these accounts, purchase things you need in the everyday course of running your business, and make your payments on-time. Your business credit score will grow stronger by the day.
This is where you head into publication, start pre-screens, water the garden daily, and start getting the inside of that house ready for move in with paint and appliances. These cards are issued by fleet companies such as Shell and Fuelman. They can be used to purchase gasoline or for automobile maintenance and repairs. Once you have enough of these accounts reporting, it’s time for the big dogs.
This is what you are aiming for. Your book or movie is out there for the public to enjoy, your garden is ready for harvest, and you can sleep comfortably in that house each night. It consists of the traditional Visa, Master, and American Express cards not associated with a specific store or type of purchase. Use this wisely, continue to make consistent, on-time payments, and your business credit will be rock solid.
You may be asking yourself the question, why bother? You may have personal credit that will allow you to get what you need to run your business without needing to work with business trade lines. It can take time, and better prices may be available elsewhere. What’s the point? Why do you need business credit?
The fact is, its never a good idea to have your business transactions on your personal credit report. There are a few reasons for this. First, if your personal credit takes a hit, it can affect your ability to run your business.
Also, business credit cards based on personal credit often have a lower credit limit, and business transactions are often very large. If you get close to your limit, your score will take a hit even if you make your payments like you should due to the high debt-to-credit ratio.
By having a business credit card based on your business credit, you can get higher limits, and your personal credit will not be affected by business transactions. This way, you do not have to worry about business transactions keeping you from applying for personal credit you may need to purchase a car or make home improvements.
Regardless of your personal credit score, you really do have to work with business trade lines to start your business credit. After you establish your business and prepare the way for your business transactions to be reported to your business credit profile, you will need accounts to report. Most credit cards will not extend credit to a business with no credit, or bad credit. Working with business trade lines that do not do a credit check is a way around that. You can start building business credit in your business name without your personal credit score ever being involved. So it’s a win/win for you and for your business.