Building business credit is a MUST in today’s economic environment. Do not get thrown off by the term “credit” and think of debt only. Business credit is very different than personal credit. The reality is that most businesses are off on their sales projections and underestimate their business expenses. A double whammy that leads to a problem quickly. Developing a cushion in your cash flow is key to business success. There are many other reasons other than just supporting your cash flow. Those reasons include:
- Separating your personal and business credit. If you have strong personal credit you want to minimize any damage caused by business to your personal credit. If you have bad personal credit this is an opportunity to build business credit.
- The creditability and fundability of your business. Building business credit is just like being 17 again with no personal credit and receiving your first MasterCard® with a $500 limit. You will use and build credit to access more. The key is to manage credit. Banks are now looking to how many vendors do you have reporting as a key barometer to determine if they should lend to you.
- Does your business look financially naked? If someone checks your company out in the business credit bureaus, two of them you can check for free, Corporate Experian® and Corporate Equifax® (go to http://budurl.com/BizCheck1 and http://budurl.com/BizCheck2). How many vendors are reporting on your business? Two or less sends a message that you may not be very stable. Sounds easy? Well, only about 10% of all the vendors that grant credit report to business credit bureaus.
- A business credit profile is being built on your company without your knowledge. Yes, that is correct. The business credit bureaus reach out to the secretary of states to pull information on the newly formed entity. It really makes sense to make sure the business credit files are built accurately because they are a lot harder to update then personal credit.
- Helping your business gain access to more cash lines of credit after a strong business credit bureau has been developed.
Let me share with you the 5 simple steps to build business credit.
Step 1: Incorporate and establish a business credit card or debit card or secure credit card. The incorporating part is easy because we have done that for you. When you opened a bank account you should have received your business debit card. You may not have applied for a business credit card. The benefit of that is the debt will be linked to the EIN number of the LLC, not to your personal SSN. Even though the business credit card is personal guaranteed, the debt will not show up in your personal credit bureau which is huge. You need to know the banks criteria before you apply. Ask them what your personal credit score has to be and what personal credit bureau they pull your score from. Find out what your personal revolving debt levels need to be? If you have any major deragatories like a BK or foreclosure you will be automatically rejected by the banks. Finally, some banks will require that you are in business for one or two years before they will let you apply for a business credit card! I know that sounds crazy. It is 95% based upon you person credit score anyway. You may want to show around and ask different banks what the options may be. Not all banks require you to open a bank account to apply for a business credit card. Here is another resource for many different types of business credit cards: www.creditcards.com
Step 2. Build the business credit profiles in the business credit bureaus. Dun & Bradstreet® requires you to pay their fee to build your profile. The fee starts at $39.00 per month. Caution: You must make sure your entity is in compliance before you build the profile. That includes have a separate business phone number, a 411 listing, a business license, a real email (not a free one) and list of officers/managers filed with the Secretary of State’s office. Everything to prove the entity is a separate legal operating business. If you make an error in the compliance area and the file is built, the entity may be “red flagged” and very difficult to switch. Corporate Experian® and Corporate Equifax® are built when vendors start reporting.
Step 3. Find vendors that report. There are over 50,000 vendors that grant vendor lines of credit and only less than 10% report to the business credit bureaus. Vendors like Office Max®, Home Depot® and Staples® will report. The reporting is what builds the business credit profiles.
Step 4: Use the vendor accounts and pay the bills on time. Once you open the vendor account you have to use the vendor credit whether a gas card or office supply credit card. When you receive the bill make sure you pay it within the terms that were provided. This may sound simple, but so many do not implement the tools once they have them in place!
Step 5: Focus on business revenues…gives you more options. Once the foundation is build properly the goal is to build the revenues in your business. That will give you opportunities after 9 months to one year for cash financing in the forms of a merchant account cash advance (on credit card sales) a cash advance on overall sales, equipment financing, an SBA loan and after one year perhaps an unsecured lined of credit. The only one that may provide financing up front with no revenues is an SBA loan. Typically, your personal credit score has to be over 680 with no major derogatories, a 2 year business, plan, your resume to see if you have experience in the field you selected and your business may see some results with the SBA. Crowd funding and micro lending are other popular options when it comes to receive money to grow your business.
Building business credit should not be viewed as an optional process that you may get to down the road. It is similar to going to a bank and asking for money when you really need it. You will not get any. If you really need it that means you maxed out your options and credit cards are maxed and that is why you need more credit. The best approach is to build business credit from the start of your entity and when you do not need it to help the business separate its credit from your personal credit, put the business in a position to look more creditable and fundable! That is a winning combination! If you could like to find out more information on how Fast Business Credit can build business credit for your business and the fees, call us at 1-888-313-6333. Be sure to ask about our $50,000 guarantee and how that can work for your business.