Published By Credit Suite at November 30th, 2015
When you invest in your 401(k) you are investing in other companies. But there’s also a way you can use the same 401(k) to invest in your business. And this is with no penalties! Retirement plan financing could be just the ticket to getting your business funded. And a business with funding is, by definition, far more likely to succeed.
Business owners can borrower against their 401(k)s and IRAs to get funds for their business. With 401(k) financing a business owner can quickly and easily rollover their retirement funds from their previous employer or IRA into the new 401(k) plan.
The funds can come from multiple different sources and multiple people. So this can include a spouse or an employee who is looking for an investment opportunity. And, thanks to provisions in the tax code, you can do this without paying a penalty.
A few of the many benefits of Retirement Financing include:
There is an alternative to retirement plan financing. And that is building business credit.
Small business credit is credit in a business’s name. It doesn’t connect to a business owner’s consumer credit, not even if the owner is a sole proprietor and the only employee of the small business.
Accordingly, an entrepreneur’s business and consumer credit scores can be very different.
Since small business credit is independent from consumer, it helps to safeguard a small business owner’s personal assets, in the event of legal action or business bankruptcy.
Also, with two distinct credit scores, an entrepreneur can get two different cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startup businesses can do this. Heading to a bank for a business loan can be a recipe for disappointment. But building business credit, when done correctly, is a plan for success.
Consumer credit scores rely on payments but also various other components like credit utilization percentages.
But for small business credit, the scores truly just depend on if a small business pays its debts timely.
Establishing company credit is a process. It does not occur automatically. A company must proactively work to build company credit.
However, it can be done readily and quickly, and it is much speedier than establishing personal credit scores.
Merchants are a big component of this process.
Accomplishing the steps out of order leads 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 rejection 100% of the time.
A business needs to be fundable to lending institutions and merchants.
For that reason, a small business needs a professional-looking web site and email address. And it needs to have site hosting bought from a company such as GoDaddy.
Additionally, company telephone and fax numbers must have a listing on 411. You can do that here: http://www.listyourself.net.
Also, the business telephone number should be toll-free (800 exchange or comparable).
A small business also needs a bank account devoted solely to it, and it has to have all of the licenses essential for operating.
These licenses all have to be in the specific, appropriate name of the small business. And they need to have the same company address and telephone numbers.
So note, that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and get an EIN for the small business. They’re totally free. Select a business entity such as corporation, LLC, etc.
A business may begin as a sole proprietor. But they absolutely need to switch to a type of corporation or an LLC.
This is to minimize risk. And it will make best use of tax benefits.
A business entity matters when it concerns tax obligations and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. 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.
Starting the Business Credit Reporting Process
Start 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 small business into 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 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 trade lines 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 begin to get credit for numerous purposes, and from all sorts of places.
These varieties of accounts often tend to be for things bought all the time, like marketing materials, shipping boxes, outdoor work wear, 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 frequently Net 30, instead of 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. In contrast to 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 the right way, you should get approval for vendor accounts that report to the business credit reporting agencies. 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 like true starter credit can. These are merchants that grant 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.
As you get starter credit, you can also start to get credit from retailers. This is to continue to confirm you are reliable and pay punctually. 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. You can 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 company address must be uniform everywhere. You need for an order to be $50 or more before they’ll report it. Your first few orders might need to be prepaid initially so your company can get approval for Net 30 terms.
How to apply with them:
Quill is an additional true starter vendor. You can find them online at www.quill.com. They sell office, packaging, and cleaning supplies. And they also sell toner, office furniture, and even shipping and school supplies. They report to Dun and Bradstreet every quarter.
To apply, you MUST have a D&B PAYDEX score. If not given a Net 30 they will ask you to do prepaid orders of $100.00. Normally any prepaid order won’t report but you would need them to have given you a Net 30 account. Net 30 accounts require $50.00 purchase to report.
New business or businesses with no credit history may need to prepay purchases until Net 30 approval. Terms are Net 30.
Here’s how to qualify:
Apply online or over the phone.
Grainger Industrial Supply is likewise 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 need a business license, EIN, and a D-U-N-S number.
To qualify, you need the following:
Your corporate entity must be in good standing with the applicable Secretary of State. If your business does not have established credit, they will require additional documents. So, these are items like accounts payable, income statement, balance sheets, and the like.
Apply online or over the phone.
Non-reporting trade accounts can also be helpful. While you do want trade accounts to report to a minimum of one of the CRAs, a trade account which does not report can also be of some worth.
You can always ask non-reporting accounts for trade references. Additionally, credit accounts of any sort will help you to better even out business expenses, therefore making financial planning simpler.
Store credit comes from a variety of retail service providers.
You must 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.
Fleet credit is from businesses where you can buy fuel, and repair and take care of vehicles. You must use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the business’s EIN.
These are companies such as Visa and MasterCard. You must use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.
So these are commonly MasterCard credit cards.
Know what is happening with your credit. Make certain it is being reported and deal with any mistakes as soon as possible. Get in the practice of taking a look at credit reports. Dig into the details, not just the scores.
At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business.
Update the information if there are mistakes or the relevant information is incomplete.
Always use credit responsibly! Never borrow beyond what you can pay back. So keep track of balances and deadlines for payments. Paying off punctually and completely does more to boost business credit scores than just about anything else.
Establishing company credit pays off. Good business credit scores help a company get loans. Your lending institution knows the small business can pay its debts. They understand the business is bona fide.
The small business’s EIN connects to high scores and credit issuers won’t feel the need to request a personal guarantee.
Business credit is an asset which can help your business for years to come. Learn more here and get started toward growing small business credit.
Borrowers have access to their own specialist to assist in the safe rollover process. And with retirement plan financing borrowers can secure financing for as much as 100% of the value of the 401(k). So, why not try it?