Published By Janet Gershen-Siegel at September 7th, 2017
You know the drill. You shopped around the major banks, and then the medium-sized banks and then the small ones. And you tried the banks where you do business and any others recommended by your friends or business associates. But after your long quest, you were unable to get any sort of a business credit cards without personal guarantee.
There are over 500 different business credit cards out there but less than fifty of them offer credit to businesses without a personal guarantee. Complicating matters, these cards are not advertised or offered to all interested clients.
You can relate to the banks’ point of view. They don’t like risk so they try to minimize it by securing a business credit card. They do this by asking you, the business owner, to guarantee payments from your personal funds, in case of business default. If worst comes to worst, and as a guarantor or co-signer you are unable to pay the debt, then your personal assets will be executed. As in, your bank accounts, your car, your home, your stocks, and anything else you may have used to guarantee that card.
But your point of view, naturally, is that you need this card to run your business better.
Build business credit! Small business credit is credit in a company’s name. It doesn’t link to an owner’s personal credit, not even when the owner is a sole proprietor and the solitary employee of the company.
As a result, a business owner’s business and personal credit scores can be very different.
Given that small business credit is distinct from consumer, it helps to safeguard a 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 merchant. This effectively doubles buying power.
Another advantage is that even new ventures can do this. Heading to a bank for a business loan can be a recipe for frustration. But building company credit, when done correctly, is a plan for success.
Personal credit scores are dependent on payments but also other considerations like credit use percentages.
But for business credit, the scores really only depend on if a small business pays its invoices on a timely basis.
Growing small business credit is a process, and it does not occur without effort. A business will need to actively work to build small business credit.
Nevertheless, it can be done easily and quickly, and it is much more efficient than building consumer credit scores.
Vendors are a big component of this process.
Doing the steps out of order will lead to repetitive rejections. Nobody can start at the top with small business credit.
A small business must be fundable to lenders and vendors.
That’s why, a company will need a professional-looking website and email address. And it needs to have site hosting from a vendor like GoDaddy.
And, company phone numbers ought to have a listing via ListYourself.net.
Likewise, the business telephone number should be toll-free (800 exchange or the like).
A business will also need a bank account dedicated only to it, and it needs to have every one of the licenses essential for operation.
These licenses all must be in the particular, correct 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 potentially also city licenses.
Visit the IRS web site and get an EIN for the small business. They’re free of charge. Choose a business entity like corporation, LLC, etc.
A business can begin as a sole proprietor. But they should change to a kind of corporation or an LLC.
This is in order to decrease risk. And it will make the most of tax benefits.
A business entity will matter when it pertains to tax obligations and liability in case of a lawsuit. A sole proprietorship means the owner is it when it comes to liability and tax obligations. Nobody else is responsible.
Begin at the D&B website and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a 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 company. You can do this at 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.
This way, Experian and Equifax will have activity to report on.
First you need to build trade lines that report. This is also called vendor credit. 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 more credit.
These types of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are normally Net 30, rather than revolving.
So, 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.
Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with marginal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 3 of these to move onto the next step. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Know what is happening with your credit. Make certain it is being reported and address any mistakes as soon as possible. Get in the practice of checking credit reports. Dig into the details, not just the scores.
Update the details if there are mistakes or the information is incomplete.
So, what’s all this monitoring for? It’s to dispute any problems in your records. Mistakes in your credit report(s) can be taken care of. But the CRAs normally want you to dispute in a particular way.
Get your 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 mistakes usually means you precisely itemize any charges you contest.
Always use credit responsibly! Don’t borrow more than what you can pay off. Keep track of balances and deadlines for payments. Paying on schedule and in full will do more to boost business credit scores than just about anything else.
Growing business credit pays off. Good business credit scores help a business get loans. Your credit issuer knows the company can pay its debts. They understand the business is for real.
The business’s EIN connects to high scores and lenders won’t feel the need to call for a personal guarantee.
With patience and in time, you can get a business credit card from a bank with no personal guarantee. All you need is what the banks ask: a solid business generating steady revenues, with a healthy cash flow.