WHAT YOU SHOULD KNOW ABOUT BUSINESS CREDIT… BUT PROBABLY DON’T…
Business credit is credit in a business name that’s linked to the business’s EIN number. This is credit a business owner can obtain that is not linked to their SSN.
When built correctly, the SSN isn’t even supplied on the application meaning there is no personal credit check to obtain this kind of EIN credit.
When you apply for something such as an auto loan, the lending institution pulls your personal credit using your name, address, and social security number.
This information is sent to the consumer credit reporting agencies, and they supply the lender a credit report with all information they have relating to someone with a similar name, address, and SSN.
With this type of credit an inquiry is then put on your consumer credit report, and your report is used to make the lending decision. Plus the credit you obtain will then be reported to the consumer reporting agencies.
When you apply for something such as a business loan, the lending institution pulls your business credit using your name, address, and EIN number.
This information is sent to the business credit reporting agencies, and they supply the lender a credit report with all information they have relating to a business with a similar name, address, and EIN.
With this type of credit an inquiry is then put on your business credit report, and your business report is used to make the lending decision. Plus the credit you obtain will then be reported to the business reporting agencies.
It’s important to note that when applying for financing and credit using your business credit, you should NOT supply your social security number on the application, even though it will be requested.
When you do this, NO personal credit can be pulled because the lender can’t pull your personal credit without your SSN.
This forces them to only pull your EIN credit as you supplied your EIN not your SSN.
This means you will be approved ONLY on the merits of your BUSINESS credit report… your personal report isn’t even reviewed.
This means there is no credit check from the business owner to get approved. This also means that anyone who has bad, even horrible personal credit can still be approved for business credit.
Here’s a video that walks you through the steps to build your business credit
No Effect on Personal Credit
Business credit reports to the business credit reporting agencies, not the consumer reporting agencies.
So as business credit is used it has no adverse impact on the owner’s consumer credit because it’s not reported to consumer agencies.
This means utilizing the account, even over 30%, won’t have any adverse impact on the personal credit scores.
And there are no inquires on the personal credit when you apply for business credit as long as you don’t supply your SSN.
30% of your total consumer credit score is based on utilization so if you use your personal credit to get credit cards for your business, if you use those cards you will lower your scores. Using more than 30% of your limit WILL result in a score decrease
So if your limit is $1,000, having a balance above $300 lowers your scores. This means 40% of your total score is damaged just by applying and using the credit you obtain using your consumer scores. With true business credit, 0% of your score is affected.
Check out this article from FICO to see how your score is calculated including the portion dedicated to utilization .
10% of your total consumer credit score is based on inquiries so if you are using your personal credit to apply for business loans and credit, your scores will go down as a result of those inquiries.
Plus those inquiries can remain on your credit for an extended period of time affecting your ability to borrow more money.
And some unsecured business lending sources won’t even lend you money if you have 2 inquiries or more on your personal credit reports within 6 months.
But with business credit, the credit doesn’t report to the consumer agencies, so neither inquiries nor utilization have any effect on your consumer credit scores.
This is one more reason every highly successful business has business credit.
Business Credit Scores Can be Built Quickly
Business credit scores are based only on whether the business pays its bills on time. As a result, a business owner can obtain credit much faster using their business credit profile versus their personal credit profile.
Personal Credit Scores are based on 5 factors: Payment History – 35%, Utilization – 30%, Length of Credit History – 15%, Accumulation of New Credit – 10%, and Credit Mix – 10%.
Paydex Score are based on Payment History:
Expect payment may come early – 100
Payment is prompt – 80
Payment comes 14 days beyond terms – 70
Payment comes 21 days beyond terms – 60
Payment comes 30 days beyond terms – 50
Payment comes 60 days beyond terms – 40
Payment comes 90 days beyond terms – 30
Payment comes 120 days beyond terms – 20
Consumer credit scores are made up of 5 factors and take years of well disciplined borrowing to get really good scores. Business credit scores are mostly based on payment history only, so as long as you pay bills as agreed… you will have an excellent score
And it only takes 2-3 reported accounts for you to establish a score, and most vendors have your account reported to the business reporting agencies in 30-90 days.
This means you can build a business credit profile and have an excellent credit score in a VERY short time period.
Check out this link to videos on how your scores are calculated with all three major business credit reporting agencies .
ANYONE Who Wants Your Business Credit Report Can Pull It
With consumer credit, someone HAS to have Permissible Purpose to pull your personal credit… basically they must have your consent to review your reports. Only certain institutions such as banks, auto dealers, mortgage brokers, and others licensed to lend money and approved for credit pulling capabilities can pull your consumer credit report.
But with business credit, this information is made public, which means ANYONE who wants your business information can easily and cheaply get it.
Think about some of the people who can see your reports as they wish whenever they want: customers, clients, suppliers, others who you might do business with and competitors.
Here is some of the information anyone can easily see about your business: Amount of tradelines (payment experiences)
High credit limits
Past payment performance
And much more…
… Is available to ANYONE who wants it.
Pull your own credit reports to see what others are seeing about your company right now .
Would you want to do business with a company with a similar profile?
What does your profile say about you… are you established?
How will your customers, clients, even competitors think about you with this information?
Keep monitoring your reports regularly to see what others can see about you. And keep building your business credit so you can have a credible image portrayed for anyone who wants to see your credit in the future… especially those who lend money or issue credit.
Getting Approved with No Personal Liability
When you put your SSN on a credit application, you are almost always providing a personal guarantee. This means you are personally liable for your business debts so if you were to default on one of these obligations, the creditor will pursue your business assets first, then they’ll come after your personal assets including… your home, your cars, your stocks and bonds, your bank accounts and any and all other assets.
Business owners don’t expect to fail but unfortunately, 90% do fail. It makes no sense to put you and your family’s financial future in jeopardy when you know going in that you have a 90% possibility of ruining it.
Remember, many times the reasons a business might fail have nothing to do with you, or things you can control… such as shifts in the economy so don’t risk it all if you don’t have to.
There is no question, starting and running a business IS risky. This is why most conventional banks make it so hard to get a loan so DON’T use a personal guarantee unless you have to.
With many business loans you will need to, but with credit you DON’T need to as long as you build business credit.
Check out this great article by Entrepreneur that talks more about separating your personal and business liability .
How to Devalue Your Business
Anyone who has sold or bought a business will tell you of the importance of business credit.
All potential buyers can easily obtain extensive information about your business, just by obtaining your business credit report… that anyone who wants it can get.
This means they’ll quickly know details about your business including:
High credit limits
Past payment performance
And much more…
Now that you know how easy extensive credit and financial information is to get for a company, if you were a buyer wouldn’t you get it?
Based on what’s on your business credit report, would you want to buy your company?
Does your report reflect that your company is “established”, does it show that you pay your bills, do you look like a successful company from your report?
If you could choose from two companies to buy that were the same in every way except business credit, which one would you buy…
…The one with a very limited or no credit profile… or one with a credit profile that reflects good payment performance, and one with available credit.
Business credit is essential in getting a good evaluation of a business, so insure you have checked yours recently and that it represents your business as you want and it should.
DOUBLE Your Borrowing Ability +++
A major benefit of business credit is that it more than DOUBLES borrowing ability.
You already have consumer credit, now you can have a whole other credit profile with business credit also.
This means it’s the only way to get multiple Staples cards, Office Depot, Lowes, Walmart, Target, and so on… in most cases.
When you have access to more store and cash credit cards, you also have access to a lot more useable money.
Plus per SBA business credit limits are 10-100 times that of consumer limits. Obtaining business credit radically increases your available credit as a result.
An average Staples card limit on the consumer side might be $3,000, but in the business world it might be closer to $30,000.
Businesses have a need for higher limits… and higher limits they get with business credit.
This is another reason it’s very hard to scale a business using personal credit only.
Plus business credit can be obtained VERY fast. You can get approved for initial vendor credit to help your business grow within 1 week. That credit will typically report within 30-90 days.
Once reported you will then have reported tradelines which in turn give you an established business credit profile and score.
Once your profile is established in 90 days or less, you can then start getting real useable revolving store credit cards.
Within 120-180 days you can then get real cash credit such as Visa, MasterCard, Discover, and AMEX credit you can use anywhere.
In this interview we dove in deep with some clients to find out exactly what is possible with business credit, and how high their limits really were, check it out
No Financials… No Problem!
Business credit is perfect for startups. Most conventional and private lenders won’t lend to companies without financials and who have been open 2 years or more.
The most popular cash flow type of financing requires one year in business and steady revenue . Most consumer credit card approvals are based on personal income. But with business credit, even a startup can get loads of new credit without any of these items.
Business credit is perfect for businesses who don’t have or want to show financials. Let’s face it, we write off all expenses in a business we can. This leaves a smaller net profit, which is what most lenders and investors look at most.
Business credit doesn’t look at financials, or bank statements. A business even with no cash flow can be approved for high limit cards, helping them grow their cash flow. And tax returns aren’t looked at either, so even if the business shows a loss they can still be approved.
Most business lending requires collateral. This is because most businesses fail, and the risk of repayment of lent money is VERY high. This is why most conventional lenders make it so hard to get money, they aren’t setup for this type of risk.
This is also why SBA requires ALL business assets, and even personal assets, be used as collateral. Business credit is one of the only ways to get money without providing collateral to offset the risk.
For more information on building your business credit download this FREE four step guide.
HEAR WHAT OUR CLIENTS HAVE TO SAY
Cobalt Credit Services
Alright! Well I am very excited because Mike and Ty and everybody have set up a very comprehensive in-dep …
Firm Credit Solutions
Hello, I’m Steve Granados and I just wanted to thank the Business Finance Suite for helping me out with m …
Hi I’m Michelle, I’m at Sacramento CA, I was just sitting here and I was going through my Business Suite …
The Credit Pros
I’m Jason Kaplan, I’m the President of The Credit Pros out at the Newark, New Jersey. Business Suite is a …