Published By Janet Gershen-Siegel at February 5th, 2018
Corporate credit building can help your business achieve its greatest potential. We have the lowdown on just what goes into the process.
Business credit is credit in a small business’s name. It doesn’t connect to an entrepreneur’s personal credit, not even when the owner is a sole proprietor and the solitary employee of the business.
Hence, a business owner’s business and individual credit scores can be very different.
Because company credit is separate from consumer, it helps to secure a business owner’s personal assets, in case of court action or business insolvency.
Also, with two separate credit scores, a small business owner can get two separate cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even startups can do this. Heading to a bank for a business loan can be a formula for frustration. But building small business credit, when done correctly, is a plan for success.
Individual credit scores depend on payments but also additional elements like credit usage percentages.
But for small business credit, the scores actually just hinge on whether a small business pays its bills on time.
Establishing small business credit is a process, and it does not occur automatically. A business will need to proactively work to build business credit.
However, it can be done readily and quickly, and it is much more rapid than establishing individual credit scores.
Merchants are a big component of this process.
Doing the steps out of order will cause repetitive rejections. Nobody can start at the top with small business credit.
A small business must be Fundable to credit issuers and vendors.
Consequently, a small business will need a professional-looking website and e-mail address. And it needs to have site hosting bought from a supplier like GoDaddy.
And, company phone numbers should have a listing on ListYourself.net.
Likewise, the business telephone number should be toll-free (800 exchange or the like).
A company will also need a bank account dedicated only to it, and it has to have all of the licenses essential for running.
These licenses all have to be in the identical, correct name of the small business. And they need to have the same small business address and telephone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and get an EIN for the business. They’re free. Choose a business entity like corporation, LLC, etc.
A company can get started as a sole proprietor. But they will more than likely want to change to a sort of corporation or an LLC.
This is in order to reduce risk. And it will make the most of tax benefits.
A business entity will matter when it pertains to taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one 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 generate 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 websites for the 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 this, Experian and Equifax will have something to report on.
First you must establish 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 kinds of accounts tend to be for the things bought all the time, like marketing materials, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are normally Net 30, instead of revolving.
Therefore, if you get an approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, like within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts need to be paid completely within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To begin your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then use the credit.
Then repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help like true starter credit can. These are vendors that will grant an approval with nominal effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian. This is the easiest way to start corporate credit building.
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/
Know what is happening with your credit. Make sure it is being reported and take care of any mistakes ASAP. Get in the practice of checking credit reports and digging into the details, and not just the scores.
Update the relevant information if there are mistakes or the information is incomplete.
So, what’s all this monitoring for? It’s to dispute any errors in your records. Errors in your credit report(s) can be corrected.
Disputing credit report errors typically means you precisely detail any charges you challenge.
Always use credit smartly! Never borrow beyond what you can pay off. Keep an eye on balances and deadlines for repayments. Paying off promptly and fully will do more to boost business credit scores than almost anything else.
Establishing business credit pays off. Great business credit scores help a small business get loans. Your lender knows the small business can pay its financial obligations. They know the company is bona fide.
The company’s EIN links to high scores and loan providers won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your small business for many years to come. Learn more here and get started toward establishing corporate credit.