Published By Janet Gershen-Siegel at December 17, 2017
What is the truth about business credit funding? Where’s the honesty? With so much conflicting information out there, it’s no wonder that there’s confusion!
Building business credit means that your company acquires opportunities you never considered you would. You can get brand new equipment, bid on realty, and deal with the company payroll. And you can do so even when times are a bit lean.
This is particularly helpful in seasonal business enterprises, where you can go for several months with solely minimal sales.
Due to this, you should focus on developing your company credit. Enhance and maintain your scores and you will have these opportunities. Do not, and either you do not get these chances, or they will cost you a lot more. And no company owner wants that.
You will need to recognize what affects your small business credit before you can make it better.
Your credit utilization rate just shows the amount of cash you have on credit. And it is then divided by your overall available credit. Lenders generally speaking do not wish to see this go above 30%. So for every $100 in credit, do not borrow on in excess of $30 of that.
If this percentage is increasing, you’ll need to spend down and pay off your debts. Do so ahead of borrowing more.
This is in essence how long your business has been making use of company credit. Naturally newer firms will have brief credit histories. While there is not a lot you can specifically do about that, do not panic.
Credit reporting bureaus will also review your personal credit score and your very own history of payments.
If your individual credit is good, and in particular if you have a relatively extensive credit history, then your personal credit can come to the rescue of your corporate. That is, you did not just get your first credit card fairly recently.
Obviously the opposite is also right. So if your private credit history is bad, then it will have an effect on your business credit scores. That is, until your company and personal credit can be split.
Late repayments will have an effect on your company credit score for a good seven years. Pay your business (and personal) debts off, as quickly as possible and as fully as possible. And then you can make a very real difference when it comes to your credit scores.
Make sure to pay on schedule and you will enjoy the rewards of promptness.
Are you having a bad business year? Then it could end up on your personal credit score. And just in case your small business has not been around for too long, it will directly impact your company credit. That being said, you can unlink the two by taking steps to separate them.
For example, if you get credit cards solely for your small business or you open business checking accounts and various other bank accounts (or perhaps get a business loan).
So then the credit reporting bureaus will start to address your consumer and small business credit on an individual basis. Also, be sure to incorporate, or at least file a DBA (doing business as) status.
You can also pay for your company’s invoices with your business credit card or checking account. And make sure it is the company’s full name on the bill and not your own.
Just the same as every company around, credit reporting bureaus like Equifax and Experian are only as good as their records. If your business’s name is like another’s, or your name is a lot like another company owner’s, there can possibly be some mistakes.
So keep track of those reports, and your company report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and dispute charges with records and clear communications.
Do not just allow them to stay incorrect! You can fix this! And while you’re at, it you should also be checking the credit reporting agency which only handles personal and not business credit. And that is TransUnion.
If you do not know exactly how to pull a credit report, do not worry. It’s easy.
Small business credit is credit in a company’s name. It doesn’t connect to an entrepreneur’s individual credit, not even if the owner is a sole proprietor and the sole employee of the small business.
As a result, a business owner’s business and personal credit scores can be very different.
Due to the fact that small business credit is separate from personal, it helps to safeguard a small business owner’s personal assets, in case of a lawsuit or business bankruptcy.
Also, with two separate credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.
Another advantage is that even startup ventures can do this. Going to a bank for a business loan can be a recipe for disappointment. But building small business credit, when done correctly, is a plan for success.
Individual credit scores are dependent on payments but also various other components like credit utilization percentages.
But for business credit, the scores actually only depend on if a company pays its bills on a timely basis.
Growing company credit is a process, and it does not occur without effort. A company will need to proactively work to establish business credit.
Nevertheless, it can be done readily and quickly, and it is much speedier than building consumer credit scores.
Merchants are a big part of this process.
Undertaking 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 denial 100% of the time.
A business must be reliable to credit issuers and vendors.
Consequently 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.
Additionally business phone and fax numbers need to have a listing on 411.com.
In addition the business phone number should be toll-free (800 exchange or similar).
A business will also need a bank account devoted purely to it, and it must have every one of the licenses essential for running.
These licenses all have to be in the identical, correct name of the business. And they need to have the same company address and phone numbers.
So note that this means not just state licenses, but possibly also city licenses.
Visit the IRS web site and get an EIN for the business. They’re free of charge. Choose a business entity such as corporation, LLC, etc.
A company can get started as a sole proprietor. But they will more than likely want to switch to a kind of corporation or partnership.
This is in order to diminish risk. And it will make best use of tax benefits.
A business entity will matter when it pertains to taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one else is responsible.
If you run a small business as a sole proprietor, then at 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 business name. As a result, you can end up being personally responsible for all small business debts.
Additionally, per the Internal Revenue Service, with this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 possibility for corporations! Prevent confusion and dramatically reduce the chances of an Internal Revenue Service audit as well.
Begin at the D&B web site and get a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a business in 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 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.
By doing so, Experian and Equifax will have activity to report on.
First you should build trade lines that report. This is also referred to 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 acquiring retail store and cash credit.
These varieties of accounts have the tendency to be for the things bought all the time, like coffee, 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.
Hence if you get an 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 need to be paid in full within 30 days. 60 accounts need to be paid in full within 60 days. In comparison with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you used.
To kick off your business credit profile properly, you should 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 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 nominal 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 one time to these vendors, and you may need to purchase some things you do not need. So this is to validate you are dependable and will pay punctually.
Consider donating unwanted items to charitable organizations.
Uline Shipping Supplies 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 D&B.
You must have a D-U-N-S number. They will ask for 2 references and a bank reference. The first few orders might need to be prepaid to first get approval for Net 30 terms. Also, you may have to buy some items you don’t need.
Quill is another true starter vendor. You can find them online at www.quill.com. They sell office, packaging, and cleaning supplies, and they report to D&B and Experian.
Since Quill reports to two separate credit reporting agencies, you get two credit experiences with them. Place an initial order first unless the D&B score is developed.
Normally they’ll put you on a 90 day prepayment schedule. If you order items each month for 3 months, they will normally approve you for a Net 30 Account.
Grainger Industrial Supply is also a true starter vendor. You can find them online at www.grainger.com. They sell safety equipment, plumbing supplies, and more, and they report to D&B. You will need a business license, EIN, and a D-U-N-S number.
For under a $1000 credit limit they will approve virtually anybody with a business license.
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 still be of some worth.
You can always ask non-reporting accounts for trade references. And credit accounts of any sort should help you to better even out business expenses, thereby making financial planning less complicated. These are providers 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, then progress to the retail credit tier. These are companies which include Office Depot and Staples. These companies are likelier to have products you need.
Use the company’s EIN on these credit applications.
One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a D-U-N-S and a PAYDEX score of 78 or better.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are companies such as BP and Conoco. Use this credit to buy, fix, and maintain vehicles. Make sure to apply using the small business’s EIN.
One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or more and a 411 business phone listing.
Shell may say 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.
Have you been sensibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are companies such as Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want 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).
In addition 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 usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Know what is happening with your credit. Make certain it is being reported and fix 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/business-credit-monitoring.
At D&B you can monitor at: www.dandb.com/credit-builder. At Experian, you can monitor your account at: www.smartbusinessreports.com/Landing/1217/. And at Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax cost about $19.99; D&B ranges from $49.99 to $99.99.
Update the information if there are inaccuracies or the information 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. And for Equifax, go here: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to dispute any mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Get your small business’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 errors commonly means you send a paper letter with duplicates of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always send copies and retain the original copies.
Fixing credit report inaccuracies also means you specifically detail any charges you contest. Make your dispute letter as understandable 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 directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute mistakes on your or your small business’s Experian report by following the directions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service contact number is here: www.dandb.com/glossary/paydex.
Always use credit sensibly! Don’t borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying off punctually and fully will do more to increase business credit scores than pretty much anything else.
Establishing company credit pays. Great business credit scores help a small business get loans. Your loan provider knows the company can pay its financial obligations. They understand the business is authentic.
The business’s EIN attaches to high scores and loan providers 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 building business credit.
Once you know what influences your corporate credit score, you are that much closer to building enhanced corporate credit. Learn more here and get started with the truth about business credit funding.