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Credit and Business

Published By Janet Gershen-Siegel at May 13th, 2018

What is it about credit and business? Find out how to develop business credit.

How Are Credit and Business Related?

Credit and business go together. You need to develop business credit. Unless, of course, you want to pay for everything in your business with your personal credit.

Don’t.

What is the Relationship Between Credit and Business?

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.

Credit and Business: The Benefits

credit and business Credit Suite2 - Credit and BusinessDue to the fact that company credit is distinct from personal, it helps to secure an entrepreneur’s personal assets, in case of court action or business insolvency.

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.

Credit and Business: The Process to Develop Business Credit

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. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Small Business Fundability

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 and fax numbers need to have a listing on 411. You can do that here: http://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. 

Licenses

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.

credit and business Credit Suite3 - Credit and Business

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Dealing with the IRS

Visit the IRS web site and get an EIN for the small business. They’re totally free. Choose a business entity such as corporation, LLC, etc.

A company may get started as a sole proprietor. But they absolutely need to 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.

Setting off the Business Credit Reporting Process

Begin at the D&B website and get a totally 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.

Vendor Credit Tier

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 credit in the retail and cash credit tiers.

These types of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, 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 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than once to these vendors. So, this is to validate you are reliable and pay punctually. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then move to the retail credit tier. These are service providers like Office Depot and Staples.

Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the small business’s EIN on these credit applications.

One such example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or higher.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to purchase fuel, and to repair, and take care of vehicles. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the business’s EIN.

One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or higher and a 411 business phone listing.

Shell might say they want a specific amount of time in business or profits. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get an approval.

credit and business Credit Suite3 - Credit and Business

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Cash Credit Tier

Have you been responsibly managing the credit you’ve up to this point? Then progress to the cash credit tier. These are companies like Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report. 

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

In addition, they want you to have an established company.

These are businesses like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are often MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.

Credit and Business: Monitor 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 and D&B for 90% less than it would cost you at the CRAs. See: www.creditsuite.com/monitoring

At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business.

Update Your Record

Update the relevant information if there are inaccuracies or the data is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For Experian, go here: www.experian.com/small-business/business-credit-information.jsp . So, for Equifax, go here: www.equifax.com/business/small-business.

Fix Your Business Credit

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. But the CRAs normally want you to dispute in a particular way.

Get your small business’s PAYDEX report at: www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: www.equifax.com/business/credit-information.

Credit and Business Disputes

Disputing credit report errors commonly means you send a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always mail copies and keep the originals.

Fixing credit report inaccuracies also means you specifically itemize any charges you dispute. Make your dispute letter as understandable as possible. Be specific about the concerns with your report. Use certified mail to have proof that you mailed in your dispute.

Dispute your or your small business’s Equifax report by following the directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.

You can dispute inaccuracies on your or your small business’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.

And D&B’s PAYDEX Customer Service phone number is here: www.dandb.com/glossary/paydex.

A Word About Credit and Business

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.

Credit and Business: Takeaways

Business credit is an asset which can help your small business for years to come. Learn more here and get started toward establishing company credit.

credit and business Credit Suite3 - Credit and Business

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

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