Published By Janet Gershen-Siegel at September 25th, 2017
Here are some ideas which will work so you can get credit for a new business. Because every business needs business credit building! Yes, you can get credit for a startup!
Business credit is credit in a small business’s name. It doesn’t attach to an entrepreneur’s consumer credit, not even when the owner is a sole proprietor and the sole employee of the company.
Consequently, an entrepreneur’s business and personal credit scores can be very different.
Given that company credit is independent from consumer, it helps to protect a business owner’s personal assets, in case of legal action or business bankruptcy.
Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles purchasing power.
Another benefit is that even startups can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building company credit, when done correctly, is a plan for success.
Personal credit scores depend upon payments but also additional considerations like credit use percentages.
But for business credit, the scores actually only depend on if a business pays its debts punctually.
Growing small business credit is a process, and it does not occur without effort. A company must actively work to develop business credit.
Nonetheless, it can be done readily and quickly, and it is much faster than establishing consumer credit scores.
Vendors are a big part of this process.
Accomplishing the steps out of order will result in repetitive denials. No one can start at the top with small business credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.
Small Business Fundability
A small business 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 site hosting from a company such as GoDaddy.
In addition, business phone and fax numbers should have a listing on ListYourself.net.
At the same time, the business phone number should be toll-free (800 exchange or comparable).
A small business will also need a bank account devoted only to it, and it must have all of the licenses essential for running.
These licenses all must be in the accurate, accurate name of the small business. And they must have the same company address and telephone numbers.
So keep in mind, that this means not just state licenses, but potentially also city licenses.
Learn more here and get credit for a new business.
Visit the Internal Revenue Service website and get an EIN for the company. They’re totally free. Choose a business entity like corporation, LLC, etc.
A company can start off 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 minimize risk. And it will make best use of tax benefits.
A business entity will matter when it comes to tax obligations and liability in the event of a lawsuit. 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 small business 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. As a result, you can end up being directly responsible for all business debts.
Also, per the IRS, using 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 lower the odds of an IRS audit at the same time.
Start at the D&B website and obtain a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a business into their system, to generate 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 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 something to report on.
First you must build trade lines that report. This is also known as 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 acquire credit in the retail and cash credit tiers.
These sorts of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are commonly Net 30, instead of revolving.
Therefore, 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 need to be paid in full within 30 days. 60 accounts have to be paid in full within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To start your business credit profile the right way, you ought to get approval for vendor accounts that report to the business credit reporting agencies. Once that’s done, you can then use the credit.
Then pay back 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 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 have to apply more than once to these vendors. So, this is to verify you are responsible and will pay timely. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
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 companies which include Office Depot and Staples.
Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the company’s EIN on these credit applications.
One such example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or higher.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to buy fuel, and to fix, and maintain vehicles. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the company’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 better and a 411 company telephone listing.
Shell may claim they want a certain amount of time in business or profits. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get approval.
Learn more here and get credit for a new business.
Have you been responsibly managing the credit you’ve up to this point? Then progress to the cash credit tier. These are companies like Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.
One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. 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 small business.
These are businesses such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are frequently MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Learn more here and get credit for a new business.
Know what is happening with your credit. Make sure it is being reported and address any inaccuracies 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 90% less than it would cost you at the CRAs. See: www.creditsuite.com/monitoring.
Update the information if there are inaccuracies or the info is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For Experian, go here: www.experian.com/small-business/business-credit-information.jsp. So for Equifax, go here: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to contest any problems in your records. Mistakes in your credit report(s) can be taken care of. But the CRAs often want you to dispute in a particular way.
Get your company’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.
Disputing credit report mistakes commonly means you mail a paper letter with copies of any evidence 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 spell out any charges you challenge. Make your dispute letter as crystal clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Dispute your or your company’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute errors on your or your company’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service phone number is here: www.dandb.com/glossary/paydex.
Always use credit smartly! Don’t borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying on time and in full will do more to increase business credit scores than almost anything else.
Growing small business credit pays. Good business credit scores help a business get loans. Your credit issuer knows the small business can pay its financial obligations. They understand the small business is authentic.
The company’s EIN attaches to high scores and credit issuers won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your small business in years to come. It works wonders when you get credit for a startup.