Building Business Credit Fast

Advantages of Business Credit

There are many advantages to building business credit. To double the borrowing ability, you can build credit in a credit profile that is separate from your business’s predict profile. This is more beneficial than consumer credit, as it has much higher credit limits and capacity. You can build business credit very quickly (30-90 days from the initial profile set-up), and it can be done without a personal credit check. Regardless of personal credit quality, one can build business credit without personal credit reporting of business accounts. Credit can usually be obtained without the owner having liability. This means that personal assets cannot be pursued. Another advantage of business credit: it increases credibility. Since credit reports are public, prospects, clients, lenders, competitors, credit issuers, or someone interested in purchasing your company can view and confirm your credibility. Business credit can be obtained by almost any company if they have an entity setup and EIN. Neither collateral nor financials are necessary to build business credit. Startup businesses can also build business credit if they follow the correct steps.

Types of Business Credit

Cash credit, store credit, and vendor credit are the three main types of business credit. Cash credit refers to credit cards which can be used anywhere (Mastercard, Visa, Amex). Store credit is available at retail stores. Vendor credit (usually with a net 30 terms) refers to the type of credit used in starting a business. It is used to start a credit profile and score.

Building An Initial Business Credit Profile in Three Steps

A new business builds credit the same way that a consumer does. A business starting with no credit profile gets approved for a new credit profile. The business uses credit and pays back the credit in a timely manner. The credit reports to reporting agencies. The credit being paid back on time establishes positive business credit, and the business then qualifies for more credit to use.

Step 1: Credibility

When building a new business credit profile, you are not using personal credit, but business credit. Since you do not have any business credit yet, and you must meet the criteria of a credit issuer when applying for credit, it is important that you have a strong business credit application since this is what will be reviewed.

Legal Entities

Any entity type can be used to build business credit. First, make your business a separate legal entity to ensure your business credit is separate from your personal credit. This means that your business cannot be a sole proprietor or partnership. You do not have a true business unless you have a separate business entity (LLC or Corporation). While other entities do not, these entities eliminate your personal liability.

Name of your Business

When presenting a business credit application, you must use your exact business name, the same one that is on file in state records. These names of the business is one of the biggest reason an applications is denied. The name on the application must match the Secretary of State record and the business license. You should also check that your business name is the same on corporation papers, bank statements, and licenses. The full business name that you use should include any recorded DBA filing that you will use.

Federal Tax ID Number

Just like every person has a Social Security Number, every business must have a Federal Tax ID number. Your business must have a Federal Tax ID number (EIN) regardless of whether you have employee numbers. This is one of the items vendors look at when approving business credit, so it is essential that it is done correctly. You should also ensure that banks, agencies, and trade credit vendors list your business’s correct Tax ID number.

The Address of your Business

Some lenders will not approve funds for your business unless you have a real business address. This means having an address of a real building that is not a home address, UPS address, or PO Box.

Dedicated Business Phone Number

Another essential item that vendors look for when considering approval of business credit is the business’s phone number. A dedicated phone number with a 411-directory assistance is required. It should not be a home or personal cell phone number. It must be under the business name. It should have an 800 number as well as a fax number. Voice Over IP numbers are acceptable as long as you do not use a home or cell number. Go to ListYourself.net to register with 411.

Email/Website

When considering approval, credit providers research the companies they are approving.  Therefore, it is essential to have a professional website where they can learn everything they need to know about your company.  A professional email is also necessary and is inexpensive and simple to create.  An example of an address: yourname@yourcompany.com.  A company lacking either of these items appears unprofessional and uncredible.

Required Licenses and Permits

Before applying, contact your State, County, and City Government offices to determine whether you need any type of license or permit for your business. Do not apply until your company is appropriately licensed.

Check Business Listings

Make sure all of the bills being mailed to your company (phone, landlord, power, etc) have your business name listed correctly. Also verify that agencies such as the State, Bank, IRS, and 411 national directory list your legal name and your business’s name correctly.

Step 2: Previewing Business Credit Reports

Before getting your credit approved, check your business credit reports to see what is being reported, and dispute any information you think is inaccurate. Dun & Bradstreet, Experian Commercial, and Equifax Commercial all offer business credit reports.

Purchasing from Dun & Bradstreet

To begin building a Dun & Bradstreet credit profile, you can obtain a Dun & Bradstreet number (D-U-N-S #).  Your number will help enable your business to borrow without a personal guarantor (free at http://www.dnb.com/).  You can enroll for the DNBi SelfMonitor to keep track of your credit while you are building it.  This costs $39-$99/month.  You can also buy a package from them for $2,000.

Purchasing from Experian Commercial

You can purchase a report from Experian for $49-$99 at http://www.smartbusinessreports.com/.  You can also view recent inquiries, check to see if you have an active Experian Business Profile, view how many trade lines are reporting, and check to see if you have a business credit score assigned yet.

Purchasing from Equifax Commercial

To purchase a copy of Equifax Small Business Credit Report, visit http://www.equifax.com/small-business/credit-report/en_sb.  It is important to apply with credit providers who report to Equifax, as creating a profile with Equifax usually takes more time than with D&B and Experian.

Reading and Understanding Credit Reports

It is important to understand how to read business credit reports, as they are very different from consumer reports. Most reports contain five scores assessing the risk of different things. The Paydex score, which is based on the business’s payment history, is the main score used in business.

Personal Credit Scores: Based on 5 Factors

Paydex Score - Dun & Bradstreet

Paydex scores are based on a business’s Payment History

Credit Reports List

A Business Credit Reports list includes many items in great detail. They include each payment made on every individual account, upper credit limit, the amount owed on each individual business account, a full payment record, payments and amounts past due, the terms of the account, the last time the account was updated and reported, each account’s payment details, working capital, current assets, net worth, liabilities, and sales. Reports also provide detailed commentary on payment patterns. These reports are set up very differently from consumer reports, so it is important to examine them carefully to accurately assess your business risk.

Step 3: Getting Vendor Credit Approval

Starting Business Credit: 2 Different Ways
There are two ways to build business credit, but D&B Credibility will try to convince you that there is only one. The company charges $2,000 to add tradelines to your report using your current creditors. Building credit here means that what you can add to your report is restricted. D&B only reports to D&B, and building credit here takes time. It does not allow you to build usable credit, they simply add current creditors. The second way one builds business credit is by getting real credit that you use to build your business, similar to how a consumer builds credit. The business credit report that results from this helps to fully establish your business, and it creates a profile and score for your business.

Starting with Vendor Accounts

Start-up businesses with no credit must use vendor accounts to build initial credit. These accounts give your business credit, which reports to a reporting agency. In this way, you build your business and receive business credit simultaneously.

Vendor Accounts

Vendor accounts work by extending a line of credit to your company. This means that you purchase goods and services that your company will use on Net day terms. You are given 15, 30, 60, or 90 days to fully pay for the product. For example, if you bought $500 worth of products from a company on Net 60 terms, you would have 60 days to fully pay the $500 back. Some companies will approve you for this based on just your 411 listing and EIN number. First, apply for the account. When you get it, use the credit and spend more than $50. The accounts will report the way in which you paid back your bill, so you want to pay it back early or on time. The accounts report to their reporting agencies in 30-50 days (or up to 3 reporting cycles), which creates a credit profile for your business. Paying back credit early gives you a good credit score and provides you with multiple trade lines. To move onto store business credit, you need to acquire five reporting accounts.

Initial Credit from Vendors

When starting a business with no credit, you need to utilize starter vendors. Starter vendors give businesses initial credit, even when they have no credit, score, or trade lines. You should not try to apply for initial starter credit from large stores such as Staples.

Starter Vendors Vendors :

Quill Office Supplies

Quill Office Supplies reports to D&B. They sell packaging, office, and cleaning supplies. Without a D&B published score, you will need to place an initial order, sometimes 3 orders of $50 or more, to be approved.

Uline Shipping Supplies

Uline shipping sells packing, shipping, and industrial supplies. To get approved for Net 20 terms, Uline will request two references, a bank reference, and possibly require a pre-payment on your first few orders. They also require a DUNS number since they report to D&B.

Gempler’s/Office Depot

Both Gempler’s and Office Depot report to D&B. They sell work supplies. Building credit with this company requires you to place an order of $50 and choose the “Invoice Me” option. They will pull credit after you pick this option. If they do not approve you for Net 20 terms, prepay for your order and continue to choose the “invoice me” option until they approve you. Placing more orders improves your chance of approval.

Reliable Office Supplies

Reliable Office Supplies to D&B, Business Equifax, and Business Experian. They sell promotional products and office supplies. To build credit with this company, place an order and request the order to be invoiced or billed to your company. After you do this, they will pull your credit. If they do not approve you, repeat these steps until they do so.

Laughlin Associates

Laughlin Associates, who deal with compliance and corporate setup, only require a 411 listing and EIN. They report to Experian. They report with 30 Net terms within 30-60 days.

Monopolize Your Marketplace

Monopolize Your Marketplace reports to Experian. They sell a10 audio CD set which details everything you should know as a business owner about business and marketing. When checking out, choose the “4 equal payments of $59.99” option. You will need an EIN, bank account, and deliverable address for this purchase. The first charge comes 30 days after ordering. Reporting takes 30-60 days.

Reminders

When building your initial credit, you will likely get vendors who you won’t use often. Do not include your SSN on the business credit applications. If you start with store credit, you will be denied, wait until you have 5 accounts reported. Apply for cash only when you have 10 reported accounts. Remember to pay your bills early, as this is the key to achieving a good credit score.