Building Business Credit in Just Ten Days

Building Business Credit in Just Ten Days

Advantages of Business Credit

Building business credit offers numerous advantages. It allows for creating a credit profile distinct from the owner’s personal credit, effectively doubling borrowing capacity. Business accounts typically have higher credit limits than personal accounts. Business credit can be established rapidly within 30-90 days for an initial profile. If managed properly, it can be built without a personal credit check. Business credit is attainable regardless of personal credit status, and business accounts are not reported on personal credit records. Most business credit can be secured without personal liability or guarantee, protecting the owner’s personal assets in case of default. Business credit reports are publicly accessible, enhancing credibility with prospects, clients, competitors, lenders, credit issuers, and potential buyers. Virtually any business with an EIN and legal entity setup can establish business credit. It doesn’t require collateral or financial statements. Even startups can build business credit, provided they follow the correct steps.

Types of Business Credit

Three primary forms of business credit are Vendor Credit, Store Credit, and Cash Credit. Vendor Credit is the foundation for establishing a business’s credit profile and score, typically offering net 30 payment terms. Store Credit is accessible at various retail outlets, including Lowes, Amazon, Apple, BP, and Walmart. Cash Credit encompasses credit cards like Visa, Mastercard, and American Express, which are widely accepted for transactions.

Three Steps to Establish Your First Business Credit Profile

A business begins to develop a new credit profile in a manner akin to an individual consumer. Initially, the business had no credit history. It starts by obtaining new credit, which is reported to business credit bureaus. The business utilizes this credit and ensures timely payments, thereby establishing a positive credit profile. As the business consistently uses the credit and maintains punctual payments, it becomes eligible for additional credit.

Step 1: Establishing Your Business’s Credibility

When creating your first business credit profile, it’s crucial to meet the criteria of credit issuers. Since your personal credit isn’t a factor and you have yet to establish business credit, the information on your application becomes the sole basis for approval. Therefore, it’s important to present a robust and thorough application to increase the likelihood of approval.

Business Structures and Entities

Building Business Credit Across Different Legal Structures: For true separation of business and personal credit, it’s essential to establish your enterprise as an independent legal entity, such as a corporation or LLC. Sole proprietorships or partnerships don’t provide this separation. Incorporating as a Corporation or LLC inherently protects against personal liability, a feature not available in other business structures.

Naming Your Business

A common cause for application denial is the discrepancy between the business name on the application and the one registered in state records. It’s crucial to use your precise business name, including any DBA (Doing Business As) filing you use. Ensure your business name is consistent across all official documents, including corporation papers, licenses, and bank statements.

Employer Identification Number (EIN)

Regardless of whether you have employees, your business entity needs a Federal Tax Identification Number (EIN), which is similar to a Social Security Number for your business. This EIN is one of the critical elements that vendors consider for approval. Ensure consistency by verifying that all agencies, banks, and trade credit vendors have your business registered with the same Tax ID number.

Company Physical Address

Your business must have a legitimate, physical brick-and-mortar address. It cannot be a residential home address, a PO Box, or a UPS address. Meeting this requirement is essential, as some lenders will not approve financing unless your business has a verifiable physical location.

Contact Number for the Business

Your business needs to have a specific phone number registered under the business name with 411 directory assistance. This is a critical verification point for lenders, vendors, creditors, and insurance providers. Being listed with 411 is one of the key factors that initial credit vendors consider for approval. Using a business phone line rather than a home or cell phone is important. Additionally, your business should ideally have an 800 and fax numbers. While Voice Over IP numbers are acceptable, personal home or cell phone numbers should not be used for this purpose.

Online Presence: Business Website and Professional Email Address

Credit providers often conduct online research on your company, making it crucial for them to find comprehensive information on your official website. It’s also important to have a professional email address, like yourname@yourcompany.com, which is cost-effective and simple to establish. The absence of a professional email or website can negatively impact your business’s credibility.

Business Licensing Requirements

It’s necessary to consult with State, County, and City Government offices to determine if specific licenses or permits are required to operate your type of business. Ensure you are fully licensed as required before applying for credit or conducting business.

Credit Reporting Agency Experian

To obtain a copy of your Smart Business report, visit [http://www.smartbusinessreports.com/] (http://www.smartbusinessreports.com/). The report typically costs between $49 to $99. This report allows you to check the number of trade lines reporting, verify if a business credit score has been assigned, confirm the status of your Experian Business Profile, and review recent inquiries.

Credit Reporting Agency Equifax

You can acquire a copy of your Equifax Small Business Credit Report by visiting [http://www.equifax.com). Please note that establishing a file with Equifax Small Business typically requires more time than D&B and Experian. Therefore, applying with credit providers that report to Equifax promptly is essential.

Credit Reporting Agency Dun & Bradstreet

Initiating the procedure for establishing your business credit profile with Dun & Bradstreet (D&B) involves obtaining a Dun & Bradstreet number (D-U-N-S #). This D-U-N-S # holds significance as it allows your business to secure financing without requiring a personal guarantor. You can obtain this number for free at [http://www.dnb.com/](http://www.dnb.com/). However, be aware that D&B may offer it as part of a package with a price tag of $2,000 or more. Furthermore, you can subscribe to D&B Self-Monitoring (DNBi SelfMonitor) to oversee your credit progress during the establishment phase. Enrolling in D&B Self-Monitoring typically incurs a monthly fee ranging from $39 to $99.

Review and Comprehend Your Reports

Business credit reports differ significantly from consumer reports, typically featuring five distinct scores that assess various risk factors. The primary score in the business domain, the Paydex score, is exclusively determined by payment history, making it markedly distinct from consumer credit scores.

Reports on Business Credit

Business Credit Reports include:

  • Payment history for each individual account, including a comprehensive payment record.
  • The credit limit for each account and the current outstanding balance.
  • The number of overdue payments.
  • Terms and conditions associated with each account.
  • Reporting and last update dates for each account.
  • Payment specifics for each account.
  • Information on current assets, liabilities, working capital, net worth, and sales.
  • Detailed commentary in the report that highlights payment patterns.

It’s important to note that business reports have a distinct format compared to consumer reports, so it’s advisable to thoroughly review them to better understand your business’s risk profile.

Step 3: Obtain Approval for Vendor Credit

Two Methods to Commence Building Business Credit

D&B Credibility offers one method to initiate a business credit profile, and they may attempt to persuade you that it’s the sole option, although it isn’t. They may charge a substantial fee, exceeding $2,000, to add trade lines to your report using your existing creditors. These trade lines exclusively report to D&B and require time. D&B has the discretion to decide what can be added; in most cases, only a few can be added. This approach doesn’t give you usable credit; it merely adds your current creditors to your profile. The alternative approach to establishing business credit resembles the process of building consumer credit. It involves getting approval from new creditors that report to business reporting agencies. With this method, you acquire genuine credit that you can utilize to develop your business. Subsequently, your business credit report forms your business credit profile and score.

Acquire Vendor Accounts

If you have no existing business credit reports, you must begin the credit-building process by obtaining vendor accounts. Suppliers who extend initial credit, even to startup businesses, provide vendor accounts. This credit is reported to business reporting agencies, enabling you to establish genuine credit while simultaneously building your business credit history.

Supplier Credit Accounts

A vendor line of credit refers to a situation where a company (the vendor) extends a credit line to your business with terms like “Net 15, 30, 60, or 90.” This means you can purchase their products or services up to a specified maximum amount and are given 15, 30, 60, or 90 days to settle the bill in full. For instance, if you are on Net 30 terms and you buy $300 worth of goods today, that $300 must be paid within the next 30 days. This arrangement allows you to acquire necessary products and services for your business and delay the payment for a specified period, thus assisting with cash flow management. Some vendors may grant your company Net 30 payment terms with minimal requirements, such as an EIN number and a listing in 411. The process typically involves applying for the account, utilizing the credit with purchases exceeding $50, and ensuring timely or early bill payment. It’s important to note that your payment history primarily influences business credit scores. These vendor accounts will report to business reporting agencies within 30-50 days or over up to three reporting cycles. Once reported, you will have established a business credit profile with a favorable credit score as long as your payments are punctual. At this stage, you will also have multiple trade lines. To advance and begin obtaining store credit, you must have at least five reporting accounts, which is the subsequent step in building business credit.

Initiate Vendor Accounts

To establish a business credit profile and score, start with starter vendors. These starter vendors are willing to extend initial credit to your business even if you have no credit history, credit score, or prior trade lines. It’s worth noting that certain stores, such as Staples, typically do not offer initial starter credit, so attempting to apply with them may not be productive.

Genuine Starter Vendors

Quill Office Supplies

Quill Office Supplies specializes in selling office, packaging, and cleaning supplies. This company reports your credit information to Dun & Bradstreet (D&B). To get approved for credit with Quill, you typically need to make an initial order unless you already have a D&B credit score established. In some cases, you may be required to place up to three orders, each totaling $50 or more, to gain approval for credit without having an initial credit history with them.

Gempler’s and Office Depot

Gempler’s and Office Depot offer work supplies and products and report credit information to Dun & Bradstreet (D&B). To establish credit with these companies, start by placing an initial order of $50 and opt for the “Invoice me” payment option. They will then conduct a credit check. If you are not approved initially, you can choose to pre-pay for your order. Continue making purchases and select the “invoice me” option until you are approved for Net 30 payment terms.

Trustworthy Office Supplies

Reliable Office Supplies offers office supplies and promotional products and provides credit reports to D&B, Experian, and Equifax. To establish credit with this company, start by making an initial purchase and request that your order be invoiced or billed to your company. They will then check your credit. If you are not approved initially, continue placing orders and requesting invoicing or billing. The more orders you make, the higher your chances of being approved for Net 30 payment terms will become.

Uline Shipping Supplies

Uline Shipping Supplies specializes in selling shipping, packing, and industrial supplies. The company reports credit information to D&B and requires your DUNS number. Uline will also request two references and a bank reference. Sometimes, the first few orders may require pre-payment to establish initial approval for Net 30 payment terms.

Dominate Your Market

Monopolize Your Market offers a comprehensive 10-audio CD set covering marketing and business strategies. They report to Experian. During checkout, select the option to make four equal payments of $59.99. The first payment will be charged after 30 days. You’ll need a bank account, EIN (Employer Identification Number), and a valid shipping address to proceed. Reporting typically takes 30-60 days.

Key Points to Keep in Mind

Here are some important considerations to remember:

  • To establish your initial credit, you may need to work with vendors you won’t frequently utilize.
  • Avoid providing your Social Security Number (SSN) on the applications.
  • Timely bill payments are crucial for achieving a high credit score.
  • It’s advisable not to begin with store credit, as you may face rejection. Wait until you have at least 5 reported accounts.
  • Reserve applications for cash credit until you have 10 reported accounts.