Published By Janet Gershen-Siegel at March 17th, 2018
Do you know what goes into establishing credit for a business? We do, and in this post we will show you how to get going with establishing business credit.
Business credit is credit in a small business’s name. It doesn’t attach to an owner’s personal credit, not even when the owner is a sole proprietor and the only employee of the business. Accordingly, an entrepreneur’s business and personal credit scores can be very different.
Given that small business credit is distinct from individual, it helps to safeguard an entrepreneur’s personal assets, in the event of litigation or business insolvency. 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 start-ups can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building business credit, when done right, is a plan for success.
Personal credit scores depend on payments but also other factors like credit usage percentages. But for company credit, the scores really merely hinge on whether a small business pays its bills punctually.
Establishing small business credit is a process, and it does not happen without effort. A company will need to proactively work to build small business credit. Having said that, it can be done readily and quickly, and it is much speedier than building individual credit scores.
Merchants are a big component of this process.
Performing the steps out of sequence will cause repetitive rejections. Nobody can start at the top with corporate credit.
A corporation has to be Fundable to lending institutions and merchants. That is why, a corporation will need a professional-looking web site and e-mail address, with website hosting bought from a merchant such as GoDaddy.
And also business telephone numbers need to have a listing on ListYourself.net.
In addition the company phone number should be toll-free (800 exchange or similar).
A business will also need a bank account dedicated only to it, and it must have all of the licenses essential for operating. These licenses all must be in the accurate, accurate name of the business, with the same business address and telephone numbers.
So bear in mind that this means not just state licenses, but potentially also city licenses.
Visit the Internal Revenue Service website and get an EIN for the corporation. They’re free of charge. Select a business entity such as corporation, LLC, etc.
A small business can start off as a sole proprietor. But they should change to a sort of corporation or partnership to diminish risk and make the most of tax benefits.
A business entity will matter when it concerns tax obligations and liability in case of litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. No one else is responsible.
If you run a company as a sole proprietor, then at 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 company name. Consequently, you can end up being personally accountable for all small business debts.
But don’t look at a DBA filing as being anything more than a steppingstone to incorporation.
Start at the D&B website and get a free DUNS number. A DUNS number is how D&B gets a corporation in their system, to generate 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 websites 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.
By doing so, Experian and Equifax will have something 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 start getting more credit.
These types of accounts tend to be for the things bought all the time, like outdoor work wear, ink and toner, and office furniture.
But first off, 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, instead of revolving.
So if you get an approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, like within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have to be paid in full within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To begin your business credit profile the proper way, you need to get approval for vendor accounts that report to the business credit reporting bureaus. As soon as that’s done, you can then make use of 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 in the same way true starter credit can. These are vendors that will grant an approval with very little effort. You also need 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
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at least 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. Additionally credit accounts of any sort ought to help you to better even out business expenses, therefore making budgeting easier. These are providers like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make certain it is being reported and take care of any inaccuracies as soon as possible. Get in the habit of checking credit reports. Dig into the details, not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for 90% less than it would cost you at the CRAs. Update the data if there are errors or the relevant information is incomplete.
So, what’s all this monitoring for? It’s to contest any problems in your records. Mistakes in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Disputing credit report errors commonly means you precisely spell out any charges you challenge.
Always use credit responsibly! Never borrow more than what you can pay off. Keep track of balances and deadlines for repayments. Paying off on schedule and fully will do more to boost business credit scores than virtually anything else.
Growing corporate credit pays off. Excellent business credit scores help a company get loans. Your lending institution knows the business can pay its debts. They understand the corporation is for real.
The company’s EIN links to high scores, and lenders often won’t feel the need to require a personal guarantee.