Published By Janet Gershen-Siegel at May 1st, 2018
Know how to establish business credit fast? We break down just what you need to know and show you what will work.
Company credit is credit in a small business’s name. It doesn’t link to a business owner’s individual credit, not even if the owner is a sole proprietor and the only employee of the small business.
Therefore, a business owner’s business and individual credit scores can be very different.
Since small business credit is distinct from consumer, it helps to safeguard an entrepreneur’s personal assets, in case of a lawsuit or business bankruptcy.
Also, with two distinct credit scores, a small business owner can get two separate cards from the same vendor. This effectively doubles buying power.
Another advantage is that even startup companies can do this. Going to a bank for a business loan can be a recipe for frustration. But building small business credit, when done the right way, is a plan for success.
Individual credit scores are dependent on payments but also various other considerations like credit use percentages.
Growing small business credit is a process, and it does not occur without effort. A small business will need to actively work to establish company credit.
However, it can be done easily and quickly, and it is much more efficient than establishing personal credit scores.
Vendors are a big aspect of this process.
Accomplishing the steps out of sequence will cause repetitive rejections. No one can start at the top with small business credit.
A small business needs to be Fundable to credit issuers and vendors.
For that reason, a small business will need a professional-looking website and email address. And it needs to have website hosting from a company such as GoDaddy.
In addition, company telephone numbers ought to have a listing on 411. You can do that here: https://www.listyourself.net.
Additionally, the business telephone number should be toll-free (800 exchange or comparable).
A company will also need a bank account devoted strictly to it, and it needs to have all of the licenses essential for operating.
These licenses all have to be in the specific, accurate name of the company. And they must have the same business address and phone numbers.
So keep in mind, that this means not just state licenses, but potentially also city licenses.
Visit the Internal Revenue Service web site and obtain an EIN for the business. They’re totally free. Select a business entity such as corporation, LLC, etc.
A company can begin as a sole proprietor. But they should switch to a sort of corporation or an LLC.
This is to limit risk. And it will make best use of tax benefits.
A business entity will matter when it pertains to taxes and liability in the event of litigation. A sole proprietorship means the business owner is it when it comes to liability and taxes. No one else is responsible.
If you run a company as a sole proprietor, then at the very least be sure to file for a DBA. This is ‘doing business as’ status.
If you do not, then your personal name is the same as the company name. Therefore, you can find yourself being personally responsible for all company financial obligations.
But don’t look at a DBA filing as anything beyond a steppingstone to incorporating.
Begin at the D&B web site and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a business 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 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.
By doing so, Experian and Equifax will have something to report on.
First you need to build trade lines that report. This is also referred to as 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 begin to get more credit.
These types of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are commonly Net 30, rather than 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, such as within 30 days on a Net 30 account.
Net 30 accounts have to be paid in full within 30 days. 60 accounts must be paid fully within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To kick off your business credit profile the right way, you ought to get approval for vendor accounts that report to the business credit reporting bureaus. When 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.
Not every vendor can help like true starter credit can. These are merchants that will grant an approval with hardly any 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. 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 certain it is being reported and take care of any errors ASAP. Get in the habit of checking credit reports. Dig into the particulars, not just the scores.
Update the details if there are mistakes or the data is incomplete.
So, what’s all this monitoring for? It’s to challenge any errors in your records. Errors in your credit report(s) can be taken care of.
Disputing credit report errors usually means you specifically detail any charges you contest.
Always use credit sensibly! Don’t borrow beyond what you can pay off. Monitor balances and deadlines for repayments. Paying off punctually and fully will do more to increase business credit scores than pretty much anything else.
Building company credit pays off. Great business credit scores help a company get loans. Your loan provider knows the business can pay its financial obligations. They understand the small business is bona fide.
The small business’s EIN links to high scores and loan providers won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your company in years to come. Learn more here and get started toward building small business credit. This is how to establish business credit fast!