Published By Janet Gershen-Siegel at May 13th, 2018
What is it about credit and business? Find out how to develop business credit. This is because credit and business go together.
Small business credit is credit in a company’s name. It doesn’t link to an owner’s personal credit, not even when the owner is a sole proprietor and the sole employee of the small business.
Consequently, a business owner’s business and personal credit scores can be very different.
With business credit, the relationship between credit and business flourishes.
Also, with two separate credit scores, a small business owner can get two different cards from the same vendor. 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 recipe for disappointment. But building small business credit, when done right, is a plan for success.
Consumer credit scores depend on payments but also other components like credit use percentages. The relationship between credit and business is different.
But for small business credit, the scores truly only hinge on whether a small business pays its bills promptly.
Building small business credit is a process. It does not occur automatically. A small business has to actively work to establish business credit.
However, it can be done easily and quickly, and it is much swifter than building personal credit scores.
Merchants are a big part of this process.
Accomplishing the steps out of sequence leads to repetitive denials. No one can start at the top with company credit.
A small business must be Fundable to credit issuers and merchants.
For this reason, a business needs a professional-looking web site and e-mail address. And it needs to have website hosting from a vendor such as GoDaddy.
Also, business telephone numbers need to have a listing on 411. You can do that here: https://www.listyourself.net.
At the same time, the business phone number should be toll-free (800 exchange or comparable).
A business also needs a bank account dedicated strictly to it, and it needs to have every one of the licenses essential for operation.
These licenses all have to be in the correct, appropriate name of the small business. And they must have the same small business address and telephone numbers.
So, bear in mind, that this means not just state licenses, but possibly also city licenses.
Visit the IRS web site and get an EIN for the small business. They’re free. Choose a business entity such as corporation, LLC, etc.
A company may get started as a sole proprietor. But they must change to a form of corporation or an LLC.
This is to lessen risk. And it will take full advantage of tax benefits.
A business entity matters when it involves tax obligations and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. No one else is responsible.
The best thing to do is to incorporate. You should only look at a DBA as an interim step on the way to incorporation.
Begin 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 company in 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 web sites for the business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.
This way, Experian and Equifax have activity to report on.
First you ought to establish trade lines that report. This is also called the vendor credit tier. 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 types of accounts have the tendency to be for the things bought all the time, like marketing materials, outdoor workwear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are commonly Net 30, versus revolving.
Therefore, 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, such as within 30 days on a Net 30 account.
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 address any mistakes as soon as possible. Get in the practice of checking credit reports and digging into the particulars, and not just the scores.
We can help you monitor business credit at Experian, Equifax, 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 inaccuracies or the data is incomplete.
So, what’s all this monitoring for? It’s to dispute any problems in your records. Mistakes in your credit report(s) can be corrected.
Disputing credit report errors commonly means you specifically itemize any charges you dispute.
Always use credit responsibly! Don’t borrow beyond what you can pay back. Monitor balances and deadlines for repayments. Paying punctually and completely does more to increase business credit scores than pretty much anything else.
Growing small business credit pays. Great business credit scores help a small business get loans. Your loan provider knows the business can pay its financial obligations. They recognize the small business is for real.
The small business’s EIN attaches to high scores and lending institutions won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your small business for years to come. Learn more here and get started toward establishing