Credit Suite Blog

Get current information on getting credit and loans to grow your business

CLICK HERE TO LEARN MORE

How to Establish Business Credit for the First Time

Published By Janet Gershen-Siegel at November 27th, 2017

Establish Business Credit for the First Time

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.

Given this, you should really work on developing your company credit. Improve and maintain your scores and you will have these chances. Do not, and either you do not get these chances, or they will set you back you a lot more. And no company owner wants that. You ought to recognize what affects your company credit before you can make it better.

Establish Business Credit for the First Time: 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: 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. For example, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Establish Business Credit for the First Time: 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 and fax numbers ought to have a listing on ListYourself.net.

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.

Establish Business Credit for the First Time Credit Suite

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

Establish Business Credit for the First Time: 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 will more than likely want to 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.

Sole Proprietors Take Note

If you operate a business as a sole proprietor, then at 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 directly responsible for all company financial obligations.

Also, according to the Internal Revenue Service, using this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 probability for corporations! Steer clear of confusion and drastically lower the odds of an Internal Revenue Service audit simultaneously.

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

Start at the D&B website and obtain 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 Tier

First you need to build 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 kinds of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, 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.

Establish Business Credit for the First Time Credit Suite

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

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 ought to get 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 Tier – 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 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may need to apply more than once to these vendors. So, this is to prove you are responsible and will pay on time.

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 such as Office Depot and Staples.

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

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

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to buy fuel, and to fix, and maintain 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 small 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 small business phone listing.

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

Establish Business Credit for the First Time Credit Suite

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

Cash Credit Tier

Have you been responsibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are service providers such as Visa and MasterCard. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or better. 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).

Additionally, 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.

Establish Business Credit for the First Time: 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 and digging into the details, and not just the scores.

We can help you monitor business credit at Experian and D&B for only $24/month. See: www.creditsuite.com/monitoring.

Update Your Information

Update the details if there are inaccuracies or the information is incomplete.

Establish Business Credit for the First Time: Fix Your Business Credit

Establish Business Credit for the First Time Credit Suite

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. 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.

Disputes

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

Fixing credit report inaccuracies also means you specifically detail any charges you challenge. Make your dispute letter as understandable 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.

Establish Business Credit for the First Time: 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.

Establish Business Credit for the First Time: 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.

 

Leave a Reply

Your email address will not be published. Required fields are marked *