A business starts building a brand new credit profile much the same as a consumer does. The business starts with no credit profile. The business gets approved for new credit that reports to the business credit reporting agencies. The business uses the credit and pays the bill timely. A positive business credit profile is established. As the business continues using the credit and pays bills timely it will qualify for more credit.
The perception lenders, vendors, and creditors have of your business is critical to your ability to build strong business credit. Before applying for business credit a business must insure it meets or exceeds all lender credibility standards. There are over 20 credibility points that are necessary for a business to have a strong, credible foundation.
It is very important that you use your exact business legal name. Your full business name should include any recorded DBA filing you will be using. Insure your business name is exactly the same on your corporation papers, licenses, and bank statements.
Whether you have employees or not your business entity must have a Federal Tax ID Number (EIN). Just like you have a Social Security Number, your business has an EIN. Your Tax ID number is used to open your bank account and to build your business credit profile. Take the time to verify that all agencies, banks, and trade credit vendors have your business listed with the same Tax ID number.
Business address must be a real brick-and-mortar building, deliverable physical address. It cannot be a home address, cannot be a PO Box and cannot be a UPS address. Some lenders will not approve and fund unless this criteria is met.
You must have a dedicated business phone number that is listed with 411 directory assistance, under the business name. Lenders, vendors, creditors, and even insurance providers will verify that your business is listed with 411. A toll-free number will give your business credibility, but you must have a LOCAL business number for the listing with 411 directory assistance.
Lenders perceive 800 number or toll-free phone numbers as a sign of business credibility. Even if you’re a single owner with a home-based business, a toll-free number provides the perception that you are an even bigger company. It’s incredibly easy and inexpensive to setup a virtual local phone number or a toll-free 800 number. A cell or home phone number as your main business line could get you “flagged” as an un-established business that is too high of a risk. DON’T give a personal cell phone or residential phone as the business phone number. You can forward a virtual number to any cell or landline phone number.
Lenders perceive a credible business as one with a fax number. As a business you will need a fax number to receive important documents, you will also need it to fax in some of your credit applications. You can setup an e-fax that goes directly to your email.
Credit providers will research your company on the internet. It is best if they learned everything directly from your company website. Not having a company website will severely hurt their chances of obtaining business credit. There are many places online that offer affordable business websites so you can have an internet presence that displays an overview of your company’s services and contact information.
It is important to get a company email address for your business. It’s not only professional, but greatly helps your chances of getting the thumbs up from a credit provider. Setting up a business email address is just too easy and inexpensive to neglect.
One of the most common mistakes when building credit for your company is non-matching business addresses on your business licenses. Even worse is not having the “required” licenses for your type of business to operate legally. You will need to contact the State, County, and City Government offices to see if there are any required licenses and permits to operate your type of business.
State business filings, county license and/or permit filings, and city license and/or permit filings should be listed correctly. IRS filings should be listed correctly. Take the time to verify that main agencies (State, IRS, Bank, and 411 national directory) have your business listed the same way and with your Exact Legal Name. Also take the time to ensure every bill you get (power bill, phone bill, landlord, etc.) has the business name listed correctly and comes to the business address.
Business Credit reports are offered by Experian, Dun & Bradstreet, and Equifax. You will first want to get a copy of your business credit reports to see what is being reported. Visit http://www.smartbusinessreports.com/ for a copy of your Smart Business Report which is just for $49-99.
Find out how many tradelines are reporting, see if you have a business credit score assigned, see if you have an active Experian Business Profile, and check on recent inquires. You can purchase a copy of your Equifax Small Business Credit Report here http://www.equifax.com/small-business/credit-report/en_sb.
It typically takes more time to create a file with Equifax Small Business than D&B and Experian. This is why it’s important to apply with the credit providers who report to Equifax. It costs $99.95 for a full report.
Obtaining a Dun & Bradstreet number (DUNS Number) begins the process of building your business credit profile with them. Your DUNS Number will also play an important role in enabling your business to borrow without a personal guarantor. The website is http://www.dnb.com/. It costs $299- 699 per DUNS Number. You can also enroll for the DNBi SelfMonitor to monitor your credit during the building process. A subscription for D&B Self Monitoring is $39-99 per month. Activate your DUNS Number and get your file a D&B Rating. D&B Rating can cost between $299-899.
A business credit report can be started much the same way as a consumer report commonly is, with small credit cards. The business can be approved for small credit cards to help them build an initial credit profile. These types of initial cards in the business world are commonly referred to as “vendor credit”.
A vendor line of credit is when a company (vendor) extends a line of credit to your business on “Net 15, 30, 60 or 90” day terms. This means that you can purchase their products or services up to a maximum dollar amount and you have 15, 30, 60 or 90 days to pay the bill in full. So if you’re set-up on Net 30 terms and were to purchase $300 worth of goods today, then that $300 is due within the next 30 days. You can get products and services for your business needs and defer the payment on those for 30 days, thereby easing cash flow. And some vendors will approve your company for Net 30 payment terms upon verification of as little as an EIN number and a 411 listing.
Always apply first without using your SSN. Some vendors will request it and some will even tell you on the phone they need to have it, but submit first without it. When your first Net 30 account reports your “tradeline” to Dun & Bradstreet, the DUNS system will automatically activate your file if it isn’t already. This is also true for Experian and Equifax.
You need to have a total of at least five (5) Net 30 day pay accounts reporting. Some vendors require an initial prepaid order before they can approve your business for terms. Your vendors do not necessarily have to serve 100% of your business needs.
After five tradelines are established using vendor accounts, obtaining revolving accounts is the next step. Revolving accounts are cards a business owner can use and not be required to pay the full balance owed each month. Revolving account approvals will begin coming from store. Store revolving credit must be obtained before the business owner starts getting Visa, MC, and Amex type cards.
Most stores will NOT approve a business owner for business credit unless the owner has an established credit profile and score, just like in the consumer world. Vendor accounts must be used first to establish a profile and score, and then store credit can be obtained. It usually takes only 90 days or less to establish a score and profile with tradelines.
Once 10 total accounts are on the credit, an owner can then start applying for Visa, MC, and Amex type credit. Approval amounts will be equivalent to the highest credit limit account on the business report. Try to have 10 accounts with at least one of them having a 10k high limit.
It is essential to keep using the credit, keep applying for more, and talk with credit providers to raise credit limits. If you do this, business credit will keep growing until higher limit credit lines are obtained, within 6-12 months.