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How to Establish Business Credit for the First Time in a Recession

Published By Janet Gershen-Siegel at September 1st, 2020

How to Establish Business Credit for the First Time in a Recession

Establish Business Credit for the First Time in a Recession

As the novel coronavirus changes our economy, you may be wondering if you even can establish business credit for the first time in a recession. You certainly can—and here’s how.

Establishing small business credit means that your company gets opportunities you never knew you would. You can get all-new equipment, bid on realty, and cover the company payroll, even when times are a bit lean. This is specifically helpful in seasonal companies, where you can go for calendar months with solely hardly any sales. It’s time to establish business credit for the first time in a recession.

Recognize what affects your company credit before you can make it better.

Establish Business Credit for the First Time in a Recession: Business Credit Building

Small business credit is credit in a business’s name. It doesn’t tie to an owner’s consumer credit, not even when the owner is a sole proprietor and the sole employee of the business.

Thus, an entrepreneur’s business and individual credit scores can be very different.

The Benefits

Considering that business credit is independent from personal, it helps to secure a business owner’s personal assets, in the event of litigation or business insolvency.

Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same merchant. This effectively doubles buying power.

Another benefit is that even startup businesses can do this. Going 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.

Consumer credit scores depend on payments but also additional components like credit usage percentages.

But for business credit, the scores truly just hinge on whether a company pays its bills on a timely basis.

Establish Business Credit for the First Time in a Recession: The Process

Building small business credit is a process, and it does not happen automatically. A company has to actively work to develop business credit.

That being said, it can be done easily and quickly, and it is much speedier than developing consumer credit scores.

Vendors are a big component of this process.

Performing the steps out of order will lead to repetitive rejections. Nobody can start at the top with company credit.

Establish Business Credit for the First Time in a Recession: Company Fundability

A company must be Fundable™ to lending institutions and merchants.

For this reason, a company will need a professional-looking web site and email address. And it needs to have website hosting bought from a company such as GoDaddy.

Plus, business telephone numbers ought to have a listing on ListYourself.com.

In addition, the company telephone number should be toll-free (800 exchange or the equivalent).

A company will also need a bank account devoted strictly to it, and it has to have every one of the licenses necessary for running.

Licenses

These licenses all must be in the accurate, correct name of the small business. And they must have the same small business address and phone numbers.

So bear in mind, that this means not just state licenses, but potentially also city licenses.

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Establish Business Credit for the First Time in a Recession: Dealing with the Internal Revenue Service

Visit the IRS website and get an EIN for the business. They’re free of charge. Pick a business entity such as corporation, LLC, etc.

A company can begin as a sole proprietor. But they should switch to a variety of corporation or an LLC.

This is in order to lessen risk. And it will take full advantage of tax benefits.

A business entity will matter when it pertains to tax obligations and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and taxes. Nobody else is responsible.

Establish Business Credit for the First Time in a Recession: Kicking Off the Business Credit Reporting Process

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 company in their system, to produce 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 correctness and completeness. If there are no records with them, go to the next step in the process.

In this way, Experian and Equifax will have activity to report on.

Vendor Credit

First you need to build trade lines that report. This is also called 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 often tend to be for the things bought all the time, like marketing materials, outdoor work wear, ink and toner, and office furniture.

But first of all, what is trade credit? These trade lines are credit issuers who will give you starter credit when you have none now. Terms are usually Net 30, instead of revolving.

Hence, 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.

Details

Net 30 accounts must be paid in full within 30 days. 60 accounts must be paid completely within 60 days. In contrast to with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.

To launch your business credit profile properly, you need approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then make use of the credit.

Then repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit – It Makes Sense

Not every vendor can help like true starter credit can. These are merchants that will grant an approval with very little effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 3 of these to move onto the next step.

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Establish Business Credit for the First Time in a Recession: Monitor 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 habit of taking a look at credit reports. Dig into the details, not just the scores.

We can help you monitor business credit at Experian, Equifax, and D&B for a lot less.

Update Your Information

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Establish Business Credit for the First Time in a Recession Fix Your Business Credit

So, what’s all this monitoring for? It’s to dispute any errors in your records. Mistakes in your credit report(s) can be fixed.

Disputes

Disputing credit report inaccuracies typically means you specifically detail any charges you challenge.

Establish Business Credit for the First Time in a Recession: A Word about Building Business Credit

Always use credit responsibly! Don’t borrow beyond what you can pay off. Track balances and deadlines for payments. Paying off promptly and completely will do more to increase business credit scores than just about anything else.

Establishing company credit pays off. Excellent business credit scores help a business get loans. Your loan provider knows the company can pay its debts. They understand the company is for real.

The company’s EIN links to high scores and loan providers won’t feel the need to call for a personal guarantee.

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Establish Business Credit for the First Time in a Recession: Takeaway

Business credit is an asset which can help your business for years to come. It’s time to get started on how to establish business credit for the first time in a recession. Or at any other time! The COVID-19 situation will not last forever.

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