Building Your Business Credit Profile The Right Way

By Gwen Moran

When it comes to growing your business, co-mingling personal and business credit is risky. If the business goes bust, your personal credit score will suffer. Conversely, if your personal record isn’t stellar, your business may not be able to get loans or supplier credit.

While the recession has made it harder to avoid personal guarantees for business credit, building a strong business credit profile is still important. It can help you prove to lenders and investors that your business is a good credit risk when the time does come for a loan or line of credit. And it may help you borrow at a lower interest rate.

Don’t know where to begin? Follow these key steps to launch a solid business credit record.

8 steps to build your business credit profile

1. Get your numbers. One of the first things you should do after establishing your company as a corporation, partnership or even a sole proprietorship, is to ensure that your firm and its Employer Identification Number are listed with Dun & Bradstreet. The company will issue your business a profile and an identifier using the Data Universal Numbering System (DUNS). You get a unique, nine-digit DUNS number for each physical location of your business. This is the start of your business credit profile, says Ryan Boatsman, CPA and partner at accounting and business advisory firm DeLap in Lake Oswego, Ore.

Banks and creditors use this number to check your company’s creditworthiness. Experian, TransUnion and Equifax also have small-business divisions, but D&B’s service is the most widely used. The D&B credit score is called a Paydex score and ranges from 1 to 100. Boatsman says an 80 or above is considered good credit — roughly the equivalent of a 750 personal FICO score.

2. Open utility accounts. When you can prove that you’ve paid a wide variety of creditors on time, you’re a better risk in lenders’ eyes, Boatsman says. Open utility and service accounts such as electric, gas and telephone service in your company’s name even if it requires a small security deposit, advises Michelle Dunn, author of “Credit and Collections: A Business Perspective.” Those payments may not end up on your credit record, but you can provide proof of regular, on-time payments, such as copies of checks, as part of an application to prospective lenders.

3. Build supplier credit. Apply for credit terms with suppliers, which may be easier to get than lines of credit or bank loans, Dunn says. Suppliers may offer your business a limited credit line with 30- or 60-day payment terms or small discounts for early remittance.

As you make timely payments, your credit limit may increase. Dunn advises urging those suppliers to report timely payments to credit bureaus, as that will help build the business credit profile. A strong profile will also help you more easily land future supplier credit, which can be an important cash flow preserver.

4. Borrow from the bank — responsibly. While many business owners think that a small-business credit card is a good way to begin building business credit, you may have better options, Dunn says. Small-business credit cards are often issued based on the business owner’s personal credit, but are not subject to the CARD Act of 2009, which protects consumers from arbitrary interest rate increases, unreasonable fees and other costly practices.

Instead, Boatsman suggests applying for a line of credit or small bank loan and paying it in a timely manner. A good place to start is the bank with which you have your business checking account, since you have a financial history there. Community banks and credit unions that offer business services may also offer more favorable interest rates and easier lending terms than large commercial banks, Boatsman adds.

5. Pay on time or early. The sooner you pay your bills, the better your business credit score will be. On the Paydex scale, 100 is reserved for businesses that pay 30 days before the due date. A score below 20 means the business pays 120 days or more after payments are due.

Another incentive for paying early: some creditors offer a discount if you pay within 10 days. That offers the double advantage of improving your credit score and putting money back in your pocket, Boatsman says.

6. Pay down balances. Just as high credit balances can affect your personal credit score, they also affect your business credit score, Dunn says. Your ratio of debt to available credit should ideally be one-third or less.

7. Keep an eye on your profile. Mistakes happen on business profiles as well as on personal profiles, and a few erroneous reports can drop your business credit score dramatically, Boatsman says. He advises checking your business profile annually as well as at least 60 days before you apply for new credit to ensure you have time to correct any mistakes or inaccuracies you find.

8. Revisit terms and guarantees. While some lenders may require personal guarantees on loans and lines of credit, especially if you’re a small or relatively new business, a strong business credit profile may ultimately relieve you of that obligation. As your profile improves, work with your lender to determine if those guarantees can be released or if you can obtain a better interest rate. The latter could save your business a significant amount of money. According to the Small Business Administration, reducing the interest rate on a $100,000 line of credit from a 13 percent to 7 percent could save you tens of thousands in interest charges over time.

Small-business owners who take care to establish separate credit profiles for their businesses show strong management acumen to prospective lenders, Boatsman says. With on-time payments and vigilance in monitoring your business credit profile, your business can have greater cash flow protection through vendor credit terms and easier, cheaper access to the finances you need to maintain and grow your business.

See related: 5 things you should know about business credit scores, Business credit scores: What they are, how to boost yours, Q&A with D&B: How businesses can start on the road to credit

Published: August 15, 2013

 

Do you run a small business such as your own company or anything from babysitting to reselling goods online? If so, then you may qualify for credit cards designed for small business use. Once you know this, the question becomes, do you really need one? Here’s how to tell.

The Perks of a Business Credit Card

The main reason small business owners want a credit card is so that they can easily separate their personal expenses from their business charges. This allows them to keep separate books for their business and to easily tally up their business expenses for the purpose of filing their taxes. And for those who control multiple business entities, having several small business credit card accounts is a useful way to keep those expenses separate.

In addition, some small business credit cards come with features designed for business use. For example, users of the Chase Ink Cash and Chase Ink Plus business credit cards (reviewed here) can use the Chase Ink app to take pictures of receipts from their purchases and tag them with customizable categories. Business credit cards can also allow the primary cardholder to set and adjust individual spending limits on employee credit cards.

Another reason to consider a business credit card is to earn credit card rewards on your most frequent purchases. For example, the American Express Simply Cash Business card offers 5% cash back for purchases at U.S. office supply stores and on wireless telephone services purchased directly from U.S. service providers. It also offers 3% cash back on a category of their choice such as advertising, shipping, gas and travel reservations.

A small business owner will want to consider using a business credit card for all of the same reasons that consumers use credit cards. These include security, convenience and benefits such as travel insurance and purchase protection. In addition, some small businesses can utilize a line of credit and the owner may wish to separate the business’s interest charges from his or her personal accounts.

Should You Avoid a Small Business Credit Card?

While there are many advantages to using a separate credit card for your small business purchases, there a few drawbacks. First, you will have an additional credit card account to manage, which can complicate your finances. In addition, having a credit card for your business can also trigger some of the same problems faced by those who have a personal credit card.

For instance, a business owner could incur too much debt by overspending or making unnecessary purchases to earn rewards. And although a small business credit card might offer some perks and benefits when traveling, a small business owner may already have a personal card that offers many of these benefits.

Applying for Business Credit Cards on Your Own

Some small business owners are freelancers and sole proprietors, not companies with employees. These applicants can often be confused when applying for a small business credit card. In particular, the application will ask for an Employer Identification Number (EIN). But since freelancers and other sole proprietors might not have their businesses incorporated, they won’t know what to enter in this field and may doubt that they’re even qualified to open a small business credit card account.

The solution for sole proprietors, and other small business owners without an EIN, is to use their Social Security number. In either case, the applicant’s personal credit history will be used to determine credit worthiness. Your credit score will be a major factor in whether you qualify for a business credit card. For example, the Blue for Business Credit Card from American Express requires an excellent credit score. You can check your credit scores for free  at BusinessCreditWorks.com to see where you stand.

By knowing the advantages and drawbacks of opening a business credit card account, you can make the right decision to manage your own enterprise, no matter what size it is.

At publishing time, the Chase Ink Cash, Chase Ink PlusBlue for Business Credit Card from American Express and American Express Simply Cash Business cards are offered through BusinessCreditWorks.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Do You Know Whats In Your Business Credit FileOne of the biggest challenges for startups and small businesses is that many have blank credit files.While it may be true that there’s nothing negative in there, there very well may be nothing positive, either. It’s just blank — and that’s a problem because an empty credit file is just as bad as having a bad credit file, according Erik Simon, director of marketing and communications for Dun & Bradstreet Credibility Corp, a business-credit monitoring service provider. “A blank credit file is to a bank like a blank resume would be to an employer,” he says.

The reason is so many different entities — from lenders to insurance companies to vendors — use that business-credit information to make decisions that can make or break a startup or even an established company. Just like your personal credit, a good credit rating can open the door for a business to borrow money, secure credit, get better payment terms or even obtain a contract.

So how do you go about establishing business credit? Simply pay your bills on time and start documenting examples of good payment history. That way, you’ll help your company boost its business credit scores.

While that sounds easy enough, not every credit bureau will let you self-report your good payment history. Dun & Bradstreet Credibility Corp offers one of the only products on the market that enables a startup- or small-business owner to proactively build and manage a commercial credit file, which in turn impacts a company’s popular and oft-cited D&B Business Credit Score.

 By contrast, Experian does not allow companies to establish their own credit profile. Instead, the credit bureau uses third-party verified and contributed information, according to Adam Fingersh, senior vice president of marketing and product management at Experian. He adds that the reason for using third-party data is to “maintain impartiality.”

Equifax does allow self-reporting but its minimum requirements for doing so are quite lofty and likely out of reach for most startups and entrepreneurial efforts. For example, Equifax requires that companies within the financial services industry have a minimum of 500 business vendors to report to on a monthly basis. Companies within other industries (non-financial services) must have a minimum of 2,000 vendors to report on a monthly basis.

Related: Five Ways to Build Business Credit

Business Credit Benefits

business-credit-cards

  Separate business credit has major advantages.

When you’re just starting your business, it’s easy to pay for the things that you need from your own checking account or credit cards. It works, and there’s no reason you can’t do it. However, as your business grows, you’ll find that there are a number of benefits to having business credit, and it’s in your best interest to create separate financial accounts for your business.

Separating the Personal and Business

When you have a separate business account, it’s easier to track your business expenses. You won’t have a purchase that combines your business and personal expenses, requiring you to highlight items on the receipt. Though your business’s credit score will initially be based on your personal credit score, over time your business will build its own score. This means that your own credit rating isn’t directly tied to the success, or failure, of your business.

Business Loans

Improving your business credit score means that banks will be more likely to give you the money you need to purchase new equipment or expand your business. Banks will be able to easily check your financial statements, both income and expenses, to determine how much your business can afford. Often, this amount is higher than if you were trying to get a loan as an individual.

Rewards

Many business credit cards offer rewards, such as cash back on all purchases or airline miles that you can use for free flights. In effect, this saves you money on everything that you buy for your business.

Extended Warranty Protection

Some banks will offer an extended warranty on items that you purchase with your business credit card. This lets you buy essential equipment without worrying whether it will break on you.

Tracking Expenses

If you only make purchases using your business accounts—checks, credit or debit cards—you’ll be able to easily track those expenses. In fact, you won’t have to save your receipts for tax time. You can simply use the copy of your credit card statements for the year.

Financing Capabilities

If you have a business credit card or line of credit, you can finance a purchase that you need to make for your business, usually at a fairly low interest rate. In fact, some business credit cards offer a zero percent interest rate for a certain time period.Sign-Up-Now1

 

The Business Credit Network ,what it is and how can it help you start and grow your business.TBCN is the brain child of Jim Roberts.It was created out of the need for people to be educated about starting  their own business.Most people when they think about the idea quickly dismiss it as just a dream.

The other problem 85 percent of the business fail in their first 5 yrs of business due to various reasons ,one being poor management skills and the other being not having the money to sustain their business growth.

Another reason business fail is not knowing the diferent way a new business can aquire funding ,and the diferent types of money available to grow their company.Today their are many types of funding sources ,due to the internet and the new types of business models to choose from.It all boils down to education.

So TBCN is designed to solve most of the problems for you,from what type of business scructure should you set up for your company be it a Corporation , a S-Corp , LLC. or Sole Proprietor ,DBA or the various other business structures you can choose from, The key is Coming up with a business plan or stratergy that works specificlly for your company.

One of the smartest things a person can do today is start their own business and we’re here to help you do just that by Creating a Network of Business Partners and exchange services between ourselves.