Understanding and improving corporate credit has two rewards—one is that it saves your small business money in the short and long terms. The second of these rewards is that it makes your business more valuable.
If you ever want to sell the business, or issue stock, well-built corporate credit helps.
What is Corporate Credit?
Corporate credit is credit which attaches to a corporation’s EIN rather than the Social Security number for any of its owners. And it is independent of any owner’s personal credit score. When we are looking at corporate credit, it’s in the context of scoring and getting a corporate credit report from Dun & Bradstreet, Equifax, and Experian.
FICO SBSS should be included although you can’t get a FICO SBSS report like with the others.
Those are the best known corporate credit reporting agencies. Dun & Bradstreet is the largest by far. D&B’s best known score is PAYDEX. Experian’s is Intelliscore Plus. And Equifax’s is the Equifax Credit Risk Score.
Any look at corporate credit will be inextricably linked to building corporate credit and improving scores. Unlike with personal credit, corporate credit has to be intentionally built. No one rewards you with it automatically.
And since it must be done deliberately, corporate credit building lends itself well to strategies and setting goals.
Establishing corporate credit and improving it should be a part of all the other planning a small business owner does. Well-built corporate credit adds tangible value, making a company a more attractive option when buying stock or even buying the company outright.
How to Build Corporate Credit
Follow these steps to building corporate credit easily.
Step 1 — Incorporating
For a preexisting corporation, some of this may already be done. But for a startup, paying attention to these details makes an enormous difference.
Since a corporation is a separate entity from a person, an entrepreneur must work to separate a corporation from its ownership.
The first and most basic steps are to get an EIN from the IRS website and properly incorporate the business. There are a few corporate types but the vast majority of businesses are an S corp or a C corp.
The biggest difference between C and S corporations is taxes. C corporations pay tax on their income, plus you pay tax on any income you receive as an owner or employee. An S corporation doesn’t pay tax—the owners report any annual revenue as personal income.
Another difference is the allowable size of a C corporation or an S corporation. An S corporation must be a domestic company, with no more than 100 shareholders and issuing only one class of stock. Shareholders can only be individuals or certain trusts and estates, never partnerships, corporations, or foreign shareholders.
We suggest speaking with a lawyer or a tax professional about which is a better choice for your business. The cost is a worthy investment in your company’s future.
Step 2 — Creating a Fundable™ Foundation
Beyond getting an EIN and incorporating, setting up a business for corporate credit purposes also means enhancing its ability to get capital—which is what being Fundable™ means.
Since some industries are considered to be high corporate credit risk, such a business should not include the name of the industry in its business name. There is nothing underhanded about calling a business Carl’s rather than Carl’s Convenience Store.
This subtle difference is not a guarantee of getting credit or financing—but it does help give your business a fighting chance. You’re not turned down before you even get started.
A small business must have a brick and mortar deliverable address. Even if a business is wholly online, it is more Fundable to have an address versus a PO box or UPS box. But a real office isn’t necessary. A virtual office works just fine and is a good investment for the future.
More aspects of a Fundable™ Foundation include having a professional business website and getting a DUNS number from Dun & Bradstreet. A Fundable Foundation promises numerous rewards for a business.
Record consistency is vital. Even something that seems as inconsequential as an ampersand will make a difference. Credit issuers and business financing companies will feel that Carl and Susan’s is not the same as Carl & Susan’s.
Step 3 — Vendor Credit
Vendor credit is a type of starter corporate credit. Often with just a little time in business, and without having to prove cash flow, a corporation can still get these corporate cards. Terms are usually net. This means you must pay off any balance within the particular net period.
Vendors may have certain requirements like a separate business phone number. Carefully building a Fundable™ Foundation before applying will make the application process go a lot more smoothly.
As a result of spending with that corporate card for expenses and paying it off on time, a corporation can establish corporate credit and improve scores. There may be cards with rewards, too.
However, this is contingent on the vendor reporting positive payment experiences to the business credit bureaus. Since many vendors do not report, it’s important to learn which ones do.
How long does it take to establish corporate credit? Knowing which vendors report helps save time so corporate credit building goes faster. Generally, vendors which report positive payment experiences will do so in less than a month.
We know which vendors report, and we keep our records up to date. Having correct and current data means you don’t waste time applying to vendors which won’t report unless you default.
Step 4 — Credit Monitoring
Building corporate credit properly is more than adding positive payment experiences. It also means addressing any negatives on your credit report. Negative (derogatory) items include public record information such as UCC liens, judgments, and bankruptcies.
Bad payment experiences are also derogatory on a corporate credit report. If your corporation is late paying its bills, your corporate credit rating will go down. But what if a negative payment experience or public record is on your corporate credit report by mistake?
This is where monitoring can really demonstrate its value. By monitoring your credit reports, you can catch errors before they truly hurt your company. Given that businesses often have to move quickly to secure inventory or good prices on raw materials, negatives on a credit report will slow everything down, if not stop it entirely.
By regularly monitoring your credit reports, you can fix issues long before you’re in a rush.
The corporate credit bureaus all offer monitoring, but that can get expensive very quickly. But at Credit Suite, through Nav, in our Business Finance Suite, you can monitor all three credit bureau reports for only $19/month, a good 90% less than if you bought separate monitoring a la carte.
Step 5 — Disputing Errors on Your Corporate Credit Reports
All the credit bureaus want their reports to be as correct as possible. As a result, they all offer means for addressing errors.
Often, a dispute can be started online and you can upload electronic copies of your documented proof. You can usually dispute by mail as well. If you are disputing by mail and sending in paper proof, always be sure to send copies and never originals.
Disputes will require proof. If you are looking to prove you paid a bill, you will most likely need to provide canceled checks or small business credit card receipts or statements, or electronic equivalents.
For proving a credit account was attributed to your small business but should not have been, you may need to prove the bill is attributable to a small business with a similar name.
Here is where a Fundable Foundation helps, because if your business name, address and other particulars are identical across the board, it will be harder for a bureau to claim a different company is just a division of your own.
You can bolster any dispute with clear communications. Documented, itemized charges prove easiest to read for most people. And naturally, courtesy goes a long way.
Step6 — Revolving Credit
While, at times, starter vendor corporate credit cards can have revolving terms, they tend to have net terms. Net 30 is the most common.
Vendors which require longer time in business or proof of extensive cash flow or capital on hand are much more likely to have revolving credit terms. You may have to show a certain amount of annual revenue. Revolving terms mean your small business can carry a balance on its expenses from month to month.
As with every type of credit, carrying a balance will nearly always result in interest charges being applied. Hence, while this option exists, it is best not to exercise it too often. A better investment of your time and energy is to pay these cards back ASAP.
Once you hit this level of corporate credit card, perks like rewards or a statement credit become more common. Given how much a corporation may need to charge business expenses, rewards, including cash back, could add up quickly.
As your limits rise, get an employee spending policy in place if you don’t already have one. Make sure employees know which are eligible purchases on their employee cards—and which aren’t.
As you continue to build corporate credit, you will eventually start to qualify for more universal business credit cards, such as Visa and Mastercard. Like with personal credit cards, these corporate cards are accepted almost anywhere.
As with net 30 vendor credit, buy what your corporation needs, spending with a corporate credit card where the provider reports to the business credit bureaus—and pay the bill back on time.
Corporate Credit Scores
Credit scores for a corporation are reported by Dun & Bradstreet, Equifax, and Experian. While there are some other credit reporting agencies, these are the three largest.
With personal credit, scores depend on the age of the accounts, the credit mix, percentage in use, new credit, and payment history.
In contrast, corporate credit is mostly scored based on your payment history. Pay your bills on time, and you’ll have good corporate credit scores. If not, then you won’t.
Unlike with personal credit, scores don’t run from 300 to 850. D&B’s PAYDEX goes from 0 to 100, as does Experian’s Business Credit Score. Your Equifax Business Failure Risk Score is a number between 1,000 and 1,610. A FICO SBSS score (the business side of FICO) runs from 0 to 300.
The business credit reporting agencies have similar scoring philosophies. You will get the most favorable funding by paying all your bills on time.
This gets your business an 80 PAYDEX score, a 90 or better Equifax Credit Risk Score, and a good FICO SBSS score, which is driven (in part) by on-time payments and business credit history. For Experian, historical behavior (payment history) is 5 – 10% of total score.
What is the Difference Between Business Credit and Corporate Credit?
Many people use the terms interchangeably, but corporate credit is credit tying directly to a corporation rather than to its owners.
Business credit, in this context, is credit a business owner may be using—with the company name on the business credit card. But the credit won’t report to business credit bureaus. Instead, it’s a factor in calculating the owner’s personal credit score.
A corporation is a separate legal entity with its own capital. It can have its own corporate credit card—if the owners have taken steps to separate corporate credit from personal credit.
For noncorporate business entities, like partnerships, corporate credit isn’t an option.
Corporate Credit Cards That We Like
Card 1 — Uline
Uline is a great starter corporate credit card because they are flexible with their requirements. Get net 30 terms for your corporation.
You need a Fundable™ Foundation for your small business. Uline prefers for a business to have a good credit profile with D&B but such is not a hard and fast requirement.
Create an account with them first. You may have to provide an SSN for informational purposes.
Their Credit Department will check your application. You may need to prepay some orders before it rewards you with net 30 terms. No personal guarantee necessary.
They report to Dun & Bradstreet and Experian.
Card 2 — Kwik Trip Extended Fleet Card
Kwik Trip is a more advanced corporate credit card than the corporate cards from Uline. Kwik Trip offers net 7, net 14, and net 20 terms. You will need to have a Fundable™ Foundation and will have to be in business for at least two years. They do not require a personal guarantee.
This corporate card reports to Dun & Bradstreet, Experian, and Equifax on a quarterly basis.
For rewards, you can earn three cents per gallon of fuel within the Kwik Trip Network. This fleet card is accepted at more than 50,000 gas stations nationwide.
Apply online or on the phone.
Card 3 — Jetblue
Soar to the next level with the Jetblue corporate credit card. If you often need to fly for business, or to fly prospects or clients to you, then this is a great business card for meaningful rewards.
This corporate card provider will require a personal guarantee from you. However, there is no minimum amount of time that you must be in business. You will need to have a business bank account and your business information and financial data must be consistent everywhere.
In order to qualify, you will need to have a Fundable™ Foundation. And, you must be able to prove your gross annual revenue to this corporate credit card provider.
If your industry mandates licensing, then you must be able to prove that your corporation is fully licensed on all levels (state, county, city, federal, and so on).
Also, your corporation will need to have both an EIN from the Internal Revenue Service and a DUNS number from Dun and Bradstreet.
A cash advance is available with business credit card approval. However, the amount of the cash advance depends upon your approval amount.
This corporate credit card will report to Experian and Equifax.
Apply online or over the phone.
Corporate credit is a valuable asset which can help your business flourish. It helps kick start your business and can help you sell either stock or the entire corporation.
Contact us today to find out how we can help you build your corporate credit—and all it can do for you.