Published By Janet Gershen-Siegel at July 14, 2018
Written by Janet Gershen-Siegel
Do you know how to get business credit? We break down just what you need to know. We show you what will work.
Getting business credit means your firm gets chances you never felt that you would. You can get cutting-edge equipment, bid on real property, and deal with the company payroll.
And you can do so even when times are a bit lean. This is specifically helpful in seasonal firms, where you can go for months with only nominal sales.
Given this, you really should work on building your business 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 business owner wants that. Understand what affects your small business credit before you can make it better.
This is how long your small business has been using business credit. Naturally newer businesses will have short credit histories. While there is not too much you can specifically do about that, do not worry.
Credit reporting agencies will also investigate your personal credit score and your own record of payments. If your personal credit is excellent, and you have a reasonably extensive credit history, then your personal credit can come to the rescue of your corporate.
Normally the converse is also true – if your private credit history is poor, then it will affect your business credit scores until business and consumer credit can be split.
Credit utilization rate is the amount of money you have on credit, then divided by overall available credit.
Lenders ordinarily do not wish to see this go above 30%. If this percentage is climbing, spend down and work off your financial obligations before borrowing more.
Late repayments will impact your business credit score for a good seven years. If you pay your small business (and personal) debts off, as fast and fully as possible, then you can make a very real difference when it involves your credit scores. Be sure to pay promptly and you will reap the rewards of punctuality.
A bad business year could end up on your individual credit score. And just in case your small business has not been around for too long, it will directly impact your corporate credit.
But you can separate the two by taking measures to unlink them. Say, if you get credit cards just for your small business, or you open business checking accounts and various other bank accounts, then the CRAs will start to treat your private and small business credit separately.
Also, be sure to incorporate, or at least file a DBA. Also, pay for all business charges with your business credit card or checking account. And make sure it is the business’s full name on the bill and not your own.
Just like every outfit around, credit reporting agencies 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 business owner’s, there can potentially be some errors.
So monitor those reports, and your business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports. Contest charges with documentation and clear-cut communications. Do not just allow them to stay incorrect! You can correct this!
Also, while you’re at it, check out the credit reporting bureau which only handles personal and not small business credit, TransUnion.
If you do not know how to pull a credit report, do not worry. It’s simple.
Establishing company credit is a process, and it does not happen without effort. A business must proactively work to build business credit. Having said that, it can be done easily and quickly, and it is much faster than establishing individual credit scores. Vendors are a big component of this process.
Carrying out the steps out of sequence will lead to repetitive rejections. No one can start at the top with company credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A company must be respectable to loan providers and vendors. Consequently, a corporation will need a professional-looking website and email address, with site hosting from a vendor such as GoDaddy. Additionally company phone and fax numbers must have a listing on 411.com.
At the same time the business phone number should be toll-free (800 exchange or comparable).
A business will also need a bank account dedicated only to it, and it has to have every one of the licenses necessary for running. These licenses all have to be in the identical, accurate name of the business, with the same corporate address and telephone numbers. Keep in mind that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and get an EIN for the business. They’re totally free. Choose a business entity such as corporation, LLC, etc. A company can get started as a sole proprietor but will most likely wish to switch to a kind of corporation or partnership to minimize risk and make the most of tax benefits.
A business entity will matter when it involves tax obligations and liability in the event of a lawsuit. A sole proprietorship means the owner is it when it comes to liability and tax obligations. Nobody else is responsible.
If you operate a company as 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. As a result, you can wind up being directly liable for all small business financial obligations.
Additionally, according to the IRS, by having this structure there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 probability for corporations! Avoid confusion and substantially reduce the chances of an Internal Revenue Service audit as well.
Begin at the D&B web site and obtain a cost-free DUNS number. A DUNS number is how D&B gets a small business into their system, to produce 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 sites for the corporation. You can do this at https://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 will have activity to report on.
First you should establish trade lines that report. This is also called vendor accounts. 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 sorts of accounts tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are creditors who will give you preliminary credit when you have none now. Terms are often Net 30, instead of revolving.
Hence 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.
Net 30 accounts have to be paid in full within 30 days. 60 accounts must be paid in full within 60 days. Unlike with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you used.
To launch your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting bureaus. 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.
Not every vendor can help in the same way 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.
But you may need to apply more than one time to these vendors, and you may need to purchase some things you don’t need to have, to validate you are dependable and will pay in a timely manner.
Consider donating unwanted things to charitable organizations.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at least one of the CRAs, a trade account which does not report can also be of some value. You can always ask non-reporting accounts for trade references.
And also credit accounts of any sort ought to help you to better even out business expenditures, thus making financial planning easier. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to revolving store credit. These are businesses such as Office Depot and Staples. These companies are likelier to have items you need.
Use the small business’s EIN on these credit applications.
One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a DUNS and a PAYDEX score of 78 or better.
Are there 8 to 10 accounts reporting? Then progress to fleet credit. These are businesses like BP and Conoco. Use this credit to purchase, fix, and take care of vehicles. Make certain to apply using the business’s EIN.
Have you been responsibly managing the credit you’ve up to this point? Then progress to cash credit. These are service providers like Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
These are service providers 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 doable.
Know what is happening with your credit. Make certain it is being reported and address any mistakes as soon as possible. Get in the practice 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: https://www.creditsuite.com/business-credit-monitoring. Update the information if there are errors or the info is incomplete.
So, what’s all this monitoring for? It’s to contest any problems in your records. Errors in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Disputing credit report errors generally 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 original copies. Always send copies and keep the original copies.
Disputing credit report inaccuracies also means you specifically detail any charges you contest. 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.
Always use credit responsibly! Don’t borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying in a timely manner and fully will do more to raise business credit scores than just about anything else.
Building small business credit pays. Great business credit scores help a business get loans. Your loan provider knows the company can pay its debts. They understand the small business is for real. The small business’s EIN links to high scores and lending institutions won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your business for years to come.
Once you know what influences your business credit score, you are that much nearer to learning how to get business credit.