Published By Janet Gershen-Siegel at October 29th, 2017
You may have a new small business, or are now connected because you invested in one. Or maybe you have suddenly become an owner or a manager. No matter what, here is why you need to separate your commercial and consumer credit.
Small business credit is credit in a small business’s name. It doesn’t link to an owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the small business.
Consequently, an entrepreneur’s business and personal credit scores can be very different.
Given that business credit is distinct from personal, it helps to secure a small business owner’s personal assets, in case of litigation or business insolvency.
Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles buying power.
Another benefit is that even new ventures can do this. Going to a bank for a business loan can be a recipe for disappointment. But building business credit, when done properly, is a plan for success.
Consumer credit scores depend on payments but also various other factors like credit use percentages.
But for business credit, the scores truly merely hinge on if a small business pays its debts on time.
Building small business credit is a process. It does not occur without effort. A company has to proactively work to build business credit.
However, it can be done readily and quickly, and it is much faster than developing personal credit scores.
Vendors are a big component of this process.
Undertaking the steps out of sequence leads to repetitive denials. No one can start at the top with company credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.
Business credit is the best way to get a commercial line of credit. Or maybe even a commercial credit loan.
A company needs to be Fundable to lending institutions and vendors.
Therefore, a small business needs a professional-looking website and email address. And it needs to have website hosting from a supplier such as GoDaddy.
In addition, company telephone and fax numbers must have a listing on 411. You can do that at www.listyourself.net.
Additionally, the company phone number should be toll-free (800 exchange or similar).
A company also needs a bank account dedicated purely to it, and it has to have all of the licenses essential for operating.
These licenses all have to be in the particular, appropriate name of the small business. And they must have the same small business address and phone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses.
Visit the IRS website and get an EIN for the business. They’re free of charge. Select a business entity like corporation, LLC, etc.
A small business can begin as a sole proprietor. But they probably want to change to a form of corporation or an LLC.
This is to minimize risk. And it will take full advantage of tax benefits.
A business entity matters when it pertains to taxes and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. No one else is responsible.
If you operate 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. Consequently, you can find yourself being personally liable for all small business debts.
But when it comes to commercial credit, don’t look at a DBA as being anything more than a steppingstone to incorporating.
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 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 web sites 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.
In this way, Experian and Equifax have something to report on.
First you should establish trade lines that report. This is also known as 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 retail and cash credit.
These sorts of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are in most cases Net 30, rather than revolving.
So, 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 have to be paid in full within 30 days. 60 accounts must 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 launch your business credit profile the right way, you ought to get approval for vendor accounts that report to the business credit reporting agencies. As soon as 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 in the same way true starter credit can. These are vendors that 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 stept. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
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 value.
You can always ask non-reporting accounts for trade references. And also credit accounts of any sort ought to help you to better even out business expenses, thus making budgeting easier.
Know what is happening with your credit. Make certain it is being reported and take care of any errors ASAP. Get in the practice of taking a look at credit reports. Dig into the particulars, not just the scores.
Update the information if there are errors or the information is incomplete. At D&B, you can do this at: https://www.dnb.com/duns-number.html . For Experian, go here: https://www.experian.com/small-business/business-credit-information . So for Equifax, use: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to contest any mistakes in your records. Mistakes in your credit report(s) can be fixed. But the CRAs often want you to dispute in a particular way.
Get your company’s PAYDEX report at: https://www.dnb.com/about-us/data-cloud.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.
Fixing credit report errors means you specifically detail any charges you challenge.
Dispute your or your business’s Equifax report by following the directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute errors on your or your business’s Experian report by following the instructions here: https://www.experian.com/small-business/business-credit-information.
And D&B’s PAYDEX Customer Service telephone number is here: www.dandb.com/glossary/paydex.
Always use credit smartly! Don’t borrow beyond what you can pay off. Keep track of balances and deadlines for repayments. Paying punctually and in full does more to raise business credit scores than pretty much anything else.
Growing company credit pays off. Good business credit scores help a business get loans. Your loan provider knows the business can pay its debts. They understand the business is authentic.
The business’s EIN attaches to high scores and lenders won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your company for many years to come. Learn more here and get started toward building company credit.