Published By Janet Gershen-Siegel at December 1st, 2017
If you start building business credit now, it will help your company for years to come.
Building business credit means that your business gets opportunities you never dreamt 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 particularly helpful in holiday business enterprises, where you can go for several months with just negligible sales.
As a result of this, you should focus on building your business credit. Enhance and maintain your scores and you will have these chances.
Do not, and either you do not get these opportunities. Or they will cost you a lot more. And no small business owner wants that. See what affects your small business credit before you can make it better.
Are you having a substandard business year? Then it could land on your consumer credit score. And if your business has not been around for too long, it will directly hit your business credit.
Fortunately, you can unlink them both by taking steps to split them up. As an example, if you get credit cards only for your company, or you open business checking accounts and various other bank accounts, then credit reporting agencies will begin to address your private and company credit on an individual basis.
Also, incorporate, or at least file a DBA. You can also pay company invoices with your firm credit card or checking account. And insure it is the small business’s name on the bill and not yours.
This is just how long your business has been working with company credit. Naturally newer companies will have short credit histories. While there is not too much you can specifically do about that, do not panic.
Credit reporting bureaus will also look into your personal credit score and your own history of payments. If your own personal credit is good, and you have a reasonably extensive credit history, then your personal credit can come to the rescue of your business.
Naturally the reverse is also true. So if your consumer credit history is bad, then it will affect your company credit scores until your small business and individual credit can be split up.
Your credit utilization rate is the amount of money you have on credit. So it is then divided by your total available credit. Lenders normally do not like to see this exceed 30%. If this percentage is climbing, you’ll need to spend down. And satisfy your financial debts ahead of borrowing more.
Late monthly payments will affect your business credit score for a good seven years. If you pay your small business financial obligations off, as fast and fully as possible, then you can make a very real difference when it comes to your credit scores.
Pay on time and experience the benefits of punctuality.
Just like every organization around, credit reporting bureaus just like Equifax and Experian are only as good as their data. If your firm’s name is similar to another’s, or your name is a lot like another company owner’s, there can possibly be mistakes.
So check those reports, and your company report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and dispute charges with paperwork and clear-cut communications.
Do not just let them stay incorrect! You can fix this! And while you’re at, it you should also be monitoring the credit reporting agency which solely handles consumer and not business credit, TransUnion.
If you do not know how you can pull a credit report, do not worry. It’s simple.
Business credit is credit in a small business’s name. It doesn’t link to an entrepreneur’s consumer credit, not even if the owner is a sole proprietor and the solitary employee. As a result, an entrepreneur’s business and individual credit scores can be very different.
Due to the fact that company credit is independent from individual, it helps to protect a small business owner’s personal assets, in case of legal action or business insolvency. Also, with two distinct credit scores, an entrepreneur can get two different cards from the same vendor. This effectively doubles purchasing power.
Another benefit is that even startups can do this. Going to a bank for a business loan can be a recipe for frustration. But building business credit, when done correctly, is a plan for success.
Individual credit scores are dependent on payments but also additional considerations like credit use percentages. But for small business credit, the scores actually just depend on if a company pays its invoices punctually.
Building business credit is a process, and it does not happen automatically. A company must proactively work to develop small business credit. However, it can be done readily and quickly, and it is much more efficient than building consumer credit scores.
Vendors are a big aspect of this process.
Doing the steps out of order will lead to repetitive denials. No one can start at the top with business credit. For instance, 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 bona fide to lenders and vendors. Consequently, a company will need a professional-looking website and e-mail address, with website hosting from a company such as GoDaddy.
Also company phone and fax numbers ought to have a listing on 411.com.
Likewise the company telephone number should be toll-free (800 exchange or similar).
A business will also need a bank account devoted solely to it, and it must have all of the licenses essential for running. These licenses all must be in the particular, appropriate name of the company, with the same business address and phone numbers.
So keep in mind that this means not just state licenses, but potentially also city licenses.
Visit the IRS website and obtain an EIN for the corporation. They’re free. Pick a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they will probably want to switch to a sort of corporation or partnership to limit risk and optimize tax benefits.
A business entity will matter when it concerns taxes and liability in case of litigation. A sole proprietorship means the owner is it when it comes to liability and taxes. Nobody 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 (‘doing business as’) status.
If you do not, then your personal name is the same as the small business name. Hence, you can wind up being personally responsible for all company financial obligations.
Also, according to the IRS, with 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 IRS audit as well.
Begin at the D&B website and get a totally free DUNS number. A DUNS number is how D&B gets a 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 web sites for the business. 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.
In this way, Experian and Equifax will have activity to report on.
First you must establish 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 obtaining retail store and cash credit.
These kinds 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 of all, 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, rather than 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, such as within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts need to be paid in full within 60 days. In contrast to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To launch your business credit profile properly, you should get approval for vendor accounts that report to the business credit reporting bureaus. When 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 like true starter credit can. These are merchants that will grant an approval with nominal 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 have to apply more than one time to these vendors, and you may have to buy some things you do not need to have, to demonstrate you are reliable and will pay promptly. Consider giving nonessential things to charitable organizations.
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 businesses which include Office Depot and Staples. These companies are more likely to have supplies you need.
Use the small business’s EIN on these credit applications.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to purchase, repair, and take care of vehicles. Make sure to apply using the business’s EIN.
Have you been sensibly managing the credit you’ve up to this point? Then move onto the cash credit tier. These are companies 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 normally MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.
Know what is happening with your credit. Make certain it is being reported and attend to any errors as soon as possible. Get in the practice of taking a look at credit reports and digging into the specifics, 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 data if there are errors or the data is incomplete.
So, what’s all this monitoring for? It’s to dispute any problems in your records. Errors in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.
Disputing credit report mistakes normally means you mail 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 retain 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 sent in your dispute.
Always use credit sensibly! Don’t borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying on time and completely will do more to increase business credit scores than virtually anything else.
Building corporate credit pays off. Great business credit scores help a business get loans. Your loan provider knows the company can pay its debts. They understand the company is bona fide.
The small business’s EIN links to high scores, and lenders 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 learn what affects your small business credit score, you are that much closer to building enhanced corporate credit. Learn more here and start building business credit now.