Published By Janet Gershen-Siegel at December 27th, 2017
When you get corporate credit, the magic starts to happen.
Developing corporate credit means that your small business attains opportunities you never knew you would. You can get all new equipment, bid on real property, and cover the company payroll, even when times are a bit lean.
This is particularly helpful in seasonal business enterprises, where you can go for several months with simply minimal sales.
As a result of this, you should really focus on developing your company credit. Enhance and maintain your scores and you will have these possibilities. Do not, and either you do not get these chances, or they will cost you a lot more. And no company owner wants that.
You should understand what affects your company credit before you can get corporate credit.
This is in a nutshell how long your business has been using business credit. Obviously newer businesses will have very short credit histories. While there is not a lot you can specifically do about that, do not stress.
Credit reporting bureaus will also evaluate your personal credit score and your own record of payments. If your own personal credit is good, and particularly if you have a reasonably extensive credit history, then your personal credit can come to the rescue of your company.
So it’s best if you didn’t just get your first personal credit card yesterday.
Of course the opposite is also true. So if your individual credit history is poor, then it will have an effect on your corporate credit scores until your small business and consumer credit can be split.
Your credit utilization rate just shows the amount of money you have on credit. It is then divided by your total available credit. Lenders generally speaking do not like to see this go above 30%. So for every $100 in credit, do not borrow on more than $30 of that.
If this percentage is increasing, you’ll need to spend down and pay off your financial obligations before borrowing more.
Tardy repayments will affect your business credit score for a good seven years. If you pay your company debts off, as quickly as possible and as fully as possible, then you can make a very real difference when it concerns your credit scores.
Make sure to pay without delay and you will experience the rewards of promptness.
An unsatisfactory business year could wind up on your individual credit score. And just in case your small business has not been around for too long, it will directly have an effect on your corporate credit. Nonetheless, you can separate both by taking steps to split up them.
As an example, if you get credit cards just for your company, or you open business checking accounts and other bank accounts, then the credit reporting agencies will begin to treat your individual and company credit independently.
Also, make sure to incorporate, or at least file a DBA.
You can also pay for your company’s statements with your business credit card or checking account. And make sure it is the small business’s name on the bill and not yours.
Just like every single entity out there, credit reporting bureaus just like Equifax and Experian are only as good as their data. If your business’s name is like another’s, or your name is a lot like another company owner’s, there could be some errors.
So monitor those reports, and your business report at Dun & Bradstreet, PAYDEX. Remain on top of these reports and question charges with paperwork and crystal clear communications. Do not just allow them to stay wrong! You can correct this!
And while you’re at, it you should also be keeping track of the credit reporting agency which only handles consumer and not business credit, TransUnion. If you do not know how you can pull a credit report, do not stress. It’s simple.
So, what’s this all leading to? Why, it’s building corporate credit, of course! So let’s look at how that’s done so you can get corporate credit.
Corporate credit is credit in a company’s name. It doesn’t tie to an owner’s personal credit, not even when the owner is a sole proprietor and the sole employee of the small business. Accordingly, a business owner’s business and individual credit scores can be very different.
Given that small business credit is independent from individual, it helps to secure an entrepreneur’s personal assets, in case of legal action or business insolvency. Also, with two separate credit scores, an entrepreneur can get two different cards from the same merchant.
This effectively doubles purchasing power.
Another advantage is that even startups can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building corporate credit, when done properly, is a plan for success.
Individual credit scores are dependent on payments but also additional factors like credit utilization percentages. But for small business credit, the scores really only hinge on if a corporation pays its invoices in a timely manner.
To get corporate credit is a process, and it does not occur without effort. A small business has to proactively work to establish small business credit. That being said, it can be done readily and quickly, and it is much swifter than developing consumer credit scores.
Vendors are a big component of this process.
Carrying out the steps out of sequence will lead to repeated denials. Nobody can start at the top with corporate credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll be turned down 100% of the time.
A corporation has to be fundable to loan providers and merchants. Hence, a small business will need a professional-looking web site and e-mail address, with site hosting purchased from a company such as GoDaddy.
Plus company phone and fax numbers ought to be listed on 411.com.
Additionally the company telephone number should be toll-free (800 exchange or the equivalent).
A business will also need a bank account devoted purely to it, and it has to have every one of the licenses required for operation. These licenses all have to be in the specific, appropriate name of the small business, with the same corporate address and phone numbers.
Bear in mind that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and acquire an EIN for the business – they’re free. Pick a business entity such as corporation, LLC, etc. A small business can start off as a sole proprietor.
But you will more than likely want to change to a variety of corporation or LLC to minimize risk and optimize tax benefits.
A business entity will matter when it comes to taxes and liability in case of a litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. Nobody else is responsible.
If you are a sole proprietor at least file for a DBA (‘doing business as’) status. If you do not, then your personal name is the same as the small business name. Consequently, you can end up being directly responsible for all small business debts.
In addition, according to the Internal Revenue Service, by having this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 possibility for incorporated businesses! Steer clear of confusion and dramatically reduce the odds of an IRS audit as well.
Begin at the D&B website and get a totally free DUNS number. A DUNS number is how D&B gets a small business into their system, to generate a PAYDEX score. If there is no DUNS 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 company. You can do this at https://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.
In this way, Experian and Equifax will have activity to report on.
First you should 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 acquiring revolving store and cash credit.
These varieties of accounts often tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are creditors who will give you starter credit when you have none now. Terms are normally Net 30, versus revolving.
So 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, like within 30 days on a Net 30 account.
Net 30 accounts have to be paid in full within 30 days. 60 accounts have to be paid completely within 60 days. In contrast to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To launch your business credit profile properly, you should get approval for vendor accounts that report to the business credit reporting agencies.
Once that’s done, you can then use the credit, pay back what you used, and the account is reported 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 very little effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
But you may need to apply more than once to these vendors, to prove you are dependable and will pay timely.
Once there are 5 – 8 or more vendor trade accounts reporting to at least one of the CRAs, move to the retail credit tier. These are companies which include Office Depot and Staples. These companies are likelier to have things you need. Use your Social Security Number and date of birth for verification purposes only. And use the business’s EIN on these credit applications for credit checks and guarantees..
Are there 8 – 10 accounts reporting? Then move onto the fleet credit tier. These are service providers like BP and Conoco. Use this credit to purchase fuel, and to repair and take care of vehicles. Make sure to use your Social Security Number and date of birth for verification purposes only. And use the business’s EIN on these credit applications for credit checks and guarantees.
Have you been sensibly handling the credit you’ve up to this point? Then move onto the cash credit tier. These are companies like Visa and MasterCard. Use your Social Security Number and date of birth for verification purposes only. And use the business’s EIN on these credit applications for credit checks and guarantees.
If you have 14 trade accounts reporting, then these are attainable as you continue to get corporate credit.
Know what is happening with your credit. Make sure it is being reported and deal with any inaccuracies ASAP. Get in the practice of taking a look at credit reports and digging into the specifics, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. See: https://www.creditsuite.com/monitoring. Update the data if there are mistakes or the information is incomplete.
So, what’s all this monitoring for? It’s to contest any inaccuracies in your records. Errors in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.
Disputing credit report errors typically means you send a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. Always send copies and keep the originals.
Disputing credit report inaccuracies also means you specifically itemize any charges you dispute. Make your dispute letter as crystal clear as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Always use credit sensibly! Don’t borrow more than what you can pay off. Keep track of balances and deadlines for repayments. Paying off on schedule and fully will do more to raise business credit scores than virtually anything else.
Establishing business credit pays. Excellent business credit scores help a corporation get loans. Your creditor knows the corporation can pay its debts. They understand the small business is bona fide.
The small business’s EIN attaches to high scores, and loan providers won’t feel the need to call for a personal guarantee.
Once you recognize what has an effect on your small business credit score, you are that much closer to when you can get corporate credit. Learn more here and get started so you can get corporate credit.