Published By Janet Gershen-Siegel at October 29th, 2020
It’s a recession phase. You may have a new small business, or are now connected because you invested in one. Or maybe you have suddenly become an owner or a manager. No matter what, here is why you need to separate your commercial and consumer credit. This is especially vital during any recession phase. And yes, that includes during the coronavirus pandemic.
Small business credit is credit in a small business’s name. It doesn’t link to an owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the small business.
Consequently, an entrepreneur’s business and personal credit scores can be very different.
Given that business credit is distinct from personal, it helps to secure a small business owner’s personal assets, in case of litigation or business insolvency. This truly matters most during a recession phase.
Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles buying power.
Another benefit is that even new ventures can do this. Going to a bank for a business loan can be a recipe for disappointment. But building business credit, when done properly, is a plan for success.
Consumer credit scores depend on payments but also various other factors like credit use percentages.
But for business credit, the scores truly merely hinge on if a small business pays its debts on time.
Building small business credit is a process. It does not occur without effort. A company has to proactively work to build business credit.
However, it can be done readily and quickly, and it is much faster than developing personal credit scores.
Vendors are a big component of this process.
Undertaking the steps out of sequence leads to repetitive denials. No one can start at the top with company credit.
Business credit is the best way to get, for example, a commercial line of credit. Or a commercial credit loan. So let’s get cracking!
A company needs to be Fundable™ to lending institutions and vendors.
Therefore, a small business needs a professional-looking website and email address. And it needs to have website hosting from a supplier such as GoDaddy.
In addition, company telephone numbers must have a listing on 411. You can do that here: https://www.listyourself.net.
Additionally, the company phone number should be toll-free (800 exchange or similar).
A company also needs a bank account dedicated purely to it, and it has to have all of the licenses essential for operating.
These licenses all have to be in the particular, appropriate name of the small business. And they must have the same small business address and phone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service web site and get an EIN for the small business. They’re free of charge. Pick a business entity like corporation, LLC, etc.
A small business may begin as a sole proprietor. But should switch to a type of corporation or an LLC.
This is to decrease risk. And it will maximize tax benefits.
A business entity matters when it involves taxes and liability in case of litigation. A sole proprietorship means the business owner is it when it comes to liability and taxes. No one else is responsible.
The best thing to do is to incorporate. You should only look at a DBA as an interim step on the way to incorporation.
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 websites for the small 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 have something to report on.
First you need to build tradelines that report. 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 for numerous purposes, and from all sorts of places.
These sorts of accounts have the tendency to be for things bought all the time, like marketing materials, shipping boxes, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are in most cases Net 30, versus revolving.
So, 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.
Net 30 accounts have to be paid in full within 30 days. 60 accounts must be paid completely within 60 days. Compared to revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you used.
To begin 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 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 in the same way true starter credit can. These are vendors that grant approval with marginal effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Uline is a true starter vendor. Find them online at www.uline.com. They offer shipping, packing, and industrial supplies, and they report to Dun & Bradstreet and Experian. You MUST have a D-U-N-S number and an EIN before starting with them. They will ask for your company bank information. Your business address must be uniform everywhere. You need for an order to be $50 or more before they’ll report it. Your first few orders may need to be prepaid initially so your business can get approval for Net 30 terms.
Check out starter vendor Marathon. Marathon Petroleum Company provides transportation fuels, asphalt, and specialty products throughout the United States. Their comprehensive product line supports commercial, industrial, and retail operations. This card reports to Dun & Bradstreet, Experian, and Equifax. Before applying for multiple accounts with WEX Fleet cards, make sure to leave enough time in between applying so they don’t red-flag your account for fraud.
Add your SSN for informational purposes. If concerned they will pull your personal credit talk to their credit department before applying. You can give a $500 deposit instead of using a personal guarantee, if in business less than a year. Apply online. Terms are Net 15. Get it here: www.marathonbrand.com.
Grainger Industrial Supply is also a true starter vendor. You can find them online at www.grainger.com. They sell hardware, power tools, pumps and more. They also do fleet maintenance. And they report to D&B. You must have a business license, EIN, and a D-U-N-S number.
Apply online or over the phone.
Non-reporting trade accounts can also be helpful, even in a recession phase. While you want trade accounts to report to at least one of the CRAs, a trade account which does not report can still be useful.
You can always ask non-reporting accounts for trade references. Also credit accounts of any sort should help you to better even out business expenses, thus making budgeting easier. These are providers like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make certain it is being reported and take care of any errors ASAP. Get in the practice of taking a look at credit reports. Dig into the particulars, not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for 90% less than it would cost you at the business credit reporting agencies. See: www.creditsuite.com/monitoring.
Update the information if there are errors or the information is incomplete.
So, what’s all this monitoring for? It’s to contest any mistakes in your records. Mistakes in your credit report(s) can be fixed.
Disputing credit report inaccuracies typically means you specifically detail any charges you challenge.
Always use credit smartly! Don’t borrow beyond what you can pay off. Keep track of balances and deadlines for repayments. Paying punctually and in full does more to raise business credit scores than pretty much anything else.
Growing company credit pays off. Good business credit scores help a business get loans. Your loan provider knows the business can pay its debts. They understand the business is authentic.
The business’s EIN attaches to high scores and lenders won’t feel the need to ask for a personal guarantee. This is particularly helpful during a recession phase.
Business credit is an asset which can help your company for many years to come. It’s time get started toward building company credit.