Regardless of whether you are an existing business or a startup, your business needs its own credit. The problem is, a lot of owners are unsure of how to start building business credit. There are companies that help build business credit, but if you aren’t careful you will get scammed. You should always know what you are paying for, and if it is worth it, or not.
Lenders are becoming more picky and there are more automatic denials than ever before. Working with an insider familiar with the system can help tremendously. It can help everything go faster and it can minimize denials. Your time is money – working with a company to help build business credit can be a wise investment. But there are things you should know.
Companies That Help Build Business Credit: Know What You Are Paying For
First and foremost, you should always know exactly what services you are paying for. The truth is, some “services” just aren’t worth it. For example, you should never pay a company to report your payments to the business credit reporting agencies. There are plenty that will do that for free. However, they do not usually advertise that they do that, nor do they typically make public which companies they report to.
Paying someone to help you find these companies? That is worth paying for.
Companies that Help Build Business Credit: Why Separate Business Credit?
There are a few reasons why it’s a good idea for your business to have credit separate from your personal credit. First is protection. If your business goes south, it will not directly affect your personal credit. You can still buy a home and a car other things you need to based on your personal credit.
Also, business credit almost always has higher limits. If you try to finance a business on personal credit cards, you will likely stay at or even go over the credit limits on your cards. This will affect your debt-to-credit ratio in a bad way. That, in turn, will negatively impact your personal credit.
Companies That Help Build Business Credit: What NOT to Pay For
We’ve established why you should not pay anyone to have your on-time payments reported. While no company has to do that, there are plenty that will, and they do it for free. Here are some other things you should never pay for.
- An EIN
- A Credit Protection Number (CPN)
- Correcting mistakes on your credit report
- A peek at your personal credit score
- A list of lenders from whom you may qualify for financing
- Trade accounts
Companies that Help Build Business Credit: What Does it Take to Build Build Business Credit
The thing is, business credit doesn’t just happen in the same way that personal credit does. It has to be intentional, and there is a process to make it all come together. It is a complicated web, and before you can understand why certain things are worth paying for, you have to understand little about what it takes to build business credit and make it all work.
Of Business Credit and Fundability™
Your business needs to be set up in just the right way to be fundable. We like to call this the Fundability Foundation™. If you do not have a Fundability Foundation™, payments may be reported, but there will be no record of your business with the business credit reporting agencies so they will not know how to apply it. Here is what it takes to have a Fundability Foundation™.
Separate Contact Information
The first step in setting up a Fundability Foundation™ is to ensure your business has its own phone number and address. That doesn’t mean you have to get a separate phone line, or even a separate location. In fact, you can still run your business from your home or on your computer if you want.
Actually, you can get a business phone number pretty easily that will work over the internet instead of phone lines. In addition, the phone number will forward to any phone you want it too so you can just use your personal cell phone or landline if you want. Whenever someone calls your business number it will ring straight to you.
You can use a virtual office for a business address unless like Supply Works, the credit issuer does not accept a virtual address. Many do accept them though. How do you get a virtual office? It’s not what you may think. This is a business that offers a physical address for a fee, and sometimes they even offer mail service and live receptionist services.
In addition, there are some that offer space for face to face meetings.
The next thing you need to do is get an EIN. It’s an identifying number for your business that works like your SSN works for you personally. You can get one for free from the IRS.
Dun & Bradstreet is the largest and most commonly used business credit reporting agency. Every credit file in their database has a D-U-N-S number. To get a D-U-N-S number, you have to apply for one through the D&B website.
Incorporating your business as an LLC, S-corp, or corporation is not negotiable. It lends credibility to your business as one that is legitimate, and also offers some protection from liability.
Which option you choose does not matter as much for getting a net 30 account with companies that help build business credit. What it does matter for is your budget and needs for liability protection. The best thing to do is talk to your attorney or a tax professional. Fair warning, you’ll lose the time in business that you already have once you incorporate. When you incorporate, you become a new entity. You basically have to start over. You’ll also lose any positive payment history you may have accumulated before you incorporate.
For this reason, you have to incorporate as soon as possible. Not only is it necessary for fundability and for building business credit, but so is time in business. The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business.
Business Bank Account
You have to open a separate, dedicated business bank account. There are a few reasons for this. First, it will help you keep track of business finances. It will also help you keep them separate from personal finances for tax purposes.
There’s more to it however. There are several types of funding you cannot get without a business bank account. Yu probably noticed that most of the companies above require one. In addition, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit card payments. Studies show consumers tend to spend more when they can pay by credit card.
For a business to be legitimate it has to have all of the necessary licenses it needs to run. If it doesn’t, red flags are going to fly up all over the place. Do the research you need to do to ensure you have all of the licenses necessary to legitimately run your business at the federal, state, and local levels.
I am sure you are wondering how a business website can affect your ability to get funding. These days, you don’t exist if you do not have a website. Yet, having a poorly put together website can be even worse. It is the first impression you make on many, and if it appears to be unprofessional it will not bode well for you with consumers or potential lenders.
Spend the time and money necessary to ensure your website is professionally designed and works well. Pay for hosting too. Don’t use a free hosting service. Also, your business needs a dedicated business email address. Make sure it has the same URL as your Website. Don’t use a free service such as Yahoo or Gmail.
Here’s another reason why a website is important. Elsewhere on our blog, there is actually a comment about a company asking for a website to help make the decision to extend, or not extend, net30 terms.
You’ll notice many of these things are listed in the requirements of our list of companies that help build business credit. These are all things that you need for a variety of reasons, including to make your business more fundable.
Companies that Help Business Business Credit: What You Should Pay For
This is just the start. There are so many other factors that affect the fundability of your business and business credit that it can be completely overwhelming. This is why it can be very profitable in the long-term to pay a company to help you through the process. Most of the time they do not actually complete the steps for you, but they can help you get where you need to be and tell you what to do once you get there.
This is crucial. You don’t waste time with companies that don’t report, and you know what is reported is showing up in the right place. There is so much more though.
The lending world is changing fast since COVID-19 hit. Lending has been cut drastically, and more changes are happening everyday. Having someone who knows how to navigate the system and both current and future changes is priceless.
Companies that Help Build Business Credit: 6 Things You Should Definitely Pay For
Guiding you through the process of setting up your business to be fundable.
All of the things mentioned above are necessary, and many of them have to happen in the right order. If something gets out of whack, it can take even more time and money to fix it. Paying someone to help you get it right the first time, or help untangle a mess that is already there, is well worth it.
Helping you find accounts that report.
It’s more difficult than a simple Google search. You need to know which accounts will report that you are actually eligible for. Otherwise, you will spend a lot of time applying for accounts that you either cannot get, or that you can get but do not report.
Helping you apply for financing.
A lot of companies will just give you a list of lenders with products they hope you qualify for. You have to fill out the applications on your own. Why would you pay for that? What’s worth paying for is a company that has a list of lenders for whom they know the underwriting requirements.
Then, as you work through the credit building program, they cross-reference so they know exactly where you pre-qualify and fill out the applications for those lenders for you! Now that’s worth paying for!
Guidance for analyzing fundability.
Fundability doesn’t stop with how your business is set up. In fact, the overall fundablity of your business actually begins before you ever have a business. This is because a lot of personal stuff can affect your ability to get funding. That’s true even if you have separate business credit.
Step-by-step guidance through the business credit building process.
Building business credit doesn’t just happen. Unlike consumer credit, you have to intentionally work to start and build it. Having a partner come alongside you and show what to do at each step is priceless.
Help navigating the lending system in this post COVID-19 economy.
Lenders are buckling down and there are more automatic denials than ever before. You are more likely to get an automatic denial rather than an automatic approval. Having someone familiar with the system, an insider if you will, can help tremendously.
Business credit monitoring.
Unlike consumer credit reports, there is no way to know what your business credit report says about you or what your score is without paying. You can pay the credit reporting agencies directly, but it works much better to pay a monitoring service that can help you keep up with your business credit on an ongoing basis. We can help you monitor your credit at Experian and Dun & Bradstreet for less than it would cost you at those business CRAs.
The bottom line is, paying companies that help build business credit can be useful. They have more time, knowledge, and experience. It can save you a lot of time and money in the long run, if you know and understand exactly what it is you are paying them to do.
Companies That Help Build Business Credit Are a Good Idea, Just Know What You Are Paying For
As you can see, it takes a little more work than just getting accounts reporting to build business credit. Your business has to be set up properly for the reporting to matter. Then, you have to keep a close eye on your business credit reports to ensure things are progressing.
It’s not a complicated process, but it takes time. The best thing to do is to set your business up to be fundable before you ever get started. Then, you should meet most of the requirements related licensure, business bank account, business address, and website. It can be extremely helpful to have guidance and help as you go through the process. Let us help you build business credit. Find out how.