Building business credit is not like building personal credit. When building personal credit, you simply do the things you do every day and your credit score builds passively. You do not have to do anything special to start or build personal credit. You can just open accounts, make purchases, pay them off, and your score builds from there. Business credit is different however. You have to actively work at it, and it takes vendors to build business credit.
How to Use Vendors to Build Business Credit and Other Steps in the Process
Building business credit is a process. There are many steps in the process. Using vendors to build business credit is actually one of the last steps. There are many steps you will need to take to ensure you can properly use vendors to build business credit.
The First Steps in the Process: Business Credit as Part of Overall Fundability
You absolutely cannot start to use vendors to build business credit if your business does not have a foundation of fundability. Here’s why. Vendors will report to the business credit reporting agencies, but those agencies will not be able to tell you from your business. Wondering how you ensure your business is set up to be fundable? We’ll tell you.
How to Build a Fundable Foundation for Your Business
A small business has to be fundable to lenders and merchants. The first step in this process, the one that allows vendors to report payments to your business credit report rather than your personal credit, is to separate your business from yourself. The business needs to be recognizable as an entity separate from the owner, and thus have financial transactions that are not related to the owner’s personal finances.
Here is how you start.
Get Separate Contact Information
First, you have to ensure your business has its own phone number, fax number, and address. Now don’t panic. That doesn’t mean you have to get a separate phone line, or even a separate location. You can still run your business from your home or on your computer if that is what you want. You do not even have to have a fax machine.
In fact, you can get a business phone number and fax number pretty easily that will work over the internet instead of phone lines. In addition, the phone number will forward to any phone you want it too so you can simply use your personal cell phone or landline if you want. Whenever someone calls your business number it will ring straight to you.
Faxes can be sent to an online fax service, if anyone ever happens to actually fax you. This part may seem outdated, but it does help your business appear legitimate to lenders.
You can use a virtual office for a business address. How do you get a virtual office? What is that? It’s not what you may think. This is a business that offers a physical address for a fee, and sometimes they even offer mail service and live receptionist services. In addition, there are some that offer meeting spaces for those times you may need to meet a client or customer in person.
You will also need a separate email address. Make sure it has the same URL as your business website. It shouldn’t be from a free service.
Get an EIN
The next thing you need to do is get an EIN for your business. This is an identifying number for your business that works in a way similar to how your SSN works for you personally. Some business owners used their SSN for their business. This is what a lot of sole proprietors and partnerships do.
However, it really doesn’t look professional to lenders, and it can cause your personal and business credit to get all mixed up. When you are looking to increase fundability, you need to apply for and use an EIN. Get one for free from the IRS.
You Have to Incorporate
This is the most important step in fundability thus far. Incorporating your business as an LLC, S-corp, or corporation is essential. It lends credence to your business as one that is legitimate. It also offers some protection from liability. For business credit building, it is a necessary step in separating your business from yourself.
Which option you choose does not matter as much building credit as it does for your budget and needs for liability protection. The best thing to do is talk to your attorney or a tax professional. What is going to happen is that you are going to lose the time in business that you have. When you incorporate, you become a new entity. You basically have to start over.
You’ll also lose any positive payment history you may have accumulated as well.
This is why you have to incorporate as soon as possible. Not only is it necessary for fundability and for building business credit, but so is time in business. The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business.
Open a Business Bank Account
You have to open a separate, dedicated business bank account. There are a few reasons for this. First, it will help you keep track of business finances. It will also help you keep them separate from personal finances for tax purposes.
There’s more to it however. There are several types of funding you cannot get without a business bank account. Many lenders and credit cards want to see one with a minimum average balance. In addition, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit card payments. Studies show consumers tend to spend more when they can pay by credit card.
Lastly, many of the best vendors to build business credit require you to have a business bank account before they will extend credit.
Due to this fact, a small business needs a professional-looking website and email address. And it needs to have site hosting you actually pay for. A free hosting service looks unprofessional.
Get a D-U-N-S Number
You will also have to get a D-U-N-S Number from Dun & Bradstreet. It’s free and easy to do on their website, but beware. They will try to sell you other services you do not need. The number is free. You definitely need it to use vendors to build business credit. Without it, you will not have a business credit profile with Dun & Bradstreet.
Since they are the largest and most commonly used business CRA, you need a profile with them.
Here is why you need vendors to build business credit. There is a vicious cycle in which you have to have credit to get credit. Most lenders and credit issuers will not extend credit if you do not have a good business credit score.
However, there are certain vendors, known as starter vendors, that will extend credit without even doing a credit check. They break this cycle. Still, they do reduce their risk in other ways. You need to know what they look for.
The Vendor Credit Tier
These vendors that do not check credit are in what we like to call the Vendor Credit Tier. We recognize 4 tiers in the business credit building process, and the vendor credit tier is where you will find vendors to build business credit. Typically, they offer net terms on invoices rather than revolving credit.
This means, 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.
Then, after you make payment, they will report your payment to the business credit reporting agencies.
There are a few such vendors out there. Here are some options to help get you started.
Examples of Vendors to Build Business Credit: Some of Our Top Picks
Not every vendor can help in the same way true starter credit can. These are vendors that grant an approval with negligible effort. You also need them to be reporting to one or more of the big three CRAs. These are Dun & Bradstreet, Equifax, and Experian.
Uline is One of Our Favorite Vendors to Build Business Credit
Uline is sells shipping, industrial, and packing materials. They also offer industrial and janitorial products. As a general rule, orders ship the same day. You can get approval for net 30 terms when you order, but they credit department may make you do a few pre-paid orders first.
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 have enough time in between applying so they don’t red-flag your account for fraud.
To qualify, you need:
• Entity in good standing with Secretary of State
• EIN number with IRS
• Business address- matching everywhere.
• D-U-N-S number
• Business License- if applicable
• A business Bank account
• Business phone number listed on 411
Your SSN is required 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.
Grainger Industrial Supply
Grainger Industrial Supply is likewise a true starter vendor. They sell safety equipment, plumbing supplies, and more. Like Uline, they report to D&B. To qualify, you must have a business license, EIN, and of course a D-U-N-S number.
For under a $1000 credit limit they approve almost anybody with a business license.
You need 5 to 8 of these types of accounts to move onto the next step, which is the retail credit tier.
Existing Accounts that Do Not Report
Be sure to check with any vendors you already do business with and ask if they will extend net terms or vendor credit of some sort and report to the business CRAs. They do not have to, but they might since they already have a relationship with you.
Likewise, ask your landlord and utilities companies if they will report your payments to them. Again, they are under no obligation to do so. However, if you ask them, they just might do it. If they do, this will only build your business credit faster.
The Rest of the Story
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the next credit tier. These are companies like Office Depot and Staples. They offer revolving credit only to be used in their own store or website.
After there are 8 or 10 of these types of account reporting, you can move to the fleet credit tier. These are service providers like BP and Conoco. Use this credit to buy fuel, and to repair, and take care of vehicles. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the company’s EIN.
If you have been responsibly managing the credit you’ve gotten up to this point, you can start to apply for credit in the cash credit tier. These are companies that extend credit not limited by location or type of purchase. Typically, these accounts have higher limits, better interest rates, and sometimes they even offer rewards!
Vendors to Build Business Credit and Business Credit Monitoring
It is important that you monitor your business credit for many reasons. However, when you are using vendors to build business credit it is even more important. This is how you will keep up with which vendors are reporting. Then, you can know when your score may be strong enough to move on to the next credit tier.
Furthermore, you will be able to keep an eye on the overall health of your credit score and catch any mistakes that may pop up.
Be Sure to Choose the Right Vendors to Build Business Credit
Like I said before, not all vendors will work to build business credit. Not only do they have to extend credit relatively easily without a credit check, but they also have to report your payments to the proper agencies. We’ve provided you with a list of a few to start with, and there are more vendors to build business credit out there. Do you research and find the ones that work best for your situation.