Over 90% of business owners have never taking the time to build business credit. The reason why I have chosen to open this article with this statement is for two reasons. #1 to give comfort to those who have not taken the time to establish business. From this statement you can see that you are not alone. #2 To help ones understand that if they take this seriously, and take the time and energy to establish business credit, any one can, then they will enter the elite small group of business owners who have a tremendous edge on their competition because they can leverage themselves financially in a way that their competitors cannot.
A road map outlined by experts.
You must separate your business credit from your personal credit. In order to do this you must set up either a corporation or an LLC. If you are a sole proprietorship or a partnership you are 100% responsible for any money that you borrow perhaps you have herd of personal guarantor.Your business must have an EIN #, and in no way should your business be connected to your social security #. Your business should open a banking account that is not linked to your personal account in any way. Be sure that the account has the correct business name. Your business should also have a business phone # that is separate from your personal Phone #, and it should be listed with your local phone company as a business, and be in a 411 directory.Once you have set up this foundation the next step is to make sure your business is registered with the following credit bureau’s and have an open file with all three of them. Equifax, Experian, and Dun & Bradstreet.
Your business must establish one bank loan, 3 business credit cards and 5 vendor trade lines of credit that all report to these three credit bureau’s. A few things I thought it might be appropriate to point out at this time is. #1 Business credit is not a substitute for personal credit. Both should be worked on and maintained and will have a bearing on haw much you will be able to receive from lending institutions, often lending institutions will in addition to looking at the business credit, look at the personal credit worthiness of the corporate officers or principles of a corporation or LLC. If you have bad personal credit work on it at the same time you are building business credit. #2 I have personally seen companies extended large sums of money who had a good credit score and report with Dun & Bradstreet without giving much bearing to other sources, the point I’ am trying to make here is, make sure that whoever’s reporting on your behalf reports to all three, and specifically these three.# 3 Business credit is very different from personal credit. There are laws that govern the accuracy of information on you personal credit that don’t exist for your business credit, this means that it is harder to change bad or inaccurate things on your business credit report, thus its important to establish business credit right, right from the start.
Why credit cards are the key.
In essence your business has to establish a credit history. Again reflecting on our road map of 3 credit cards 1 bank loan and 5 vender trade lines, each time we attain one of these elements it will be easier to attain the next.
If we do not qualify for a unsecured credit card it is relatively easy to get a secured credit card provided we have a small sum of money that we can deposit into an account as collateral on our credit limit for the newly acquired credit card. Once we have our credit card it will be easier to get vendors to extend us a 30 or 60 or 90 day line of credit provided that we allow them to keep our credit card on file. After we have paid on our secured credit card for a little while our bank will make it an unsecured credit card. Once this happens it is often much easier to get another issuing bank to give you an unsecured credit card as they can see that your business has established a measure of credibility. At this point things can move forward in a timely fashion and before you know it you have every thing on the road map to success. Once you have reached this point a few things to remember are #1 keep your credit card balances bellow 50% of your total available credit as this will reflect well on your credit score. In addition to this it is important to make sure you do not have any insufficient funds hit you record for checks that your business writes, pay all your accounts on time as well as pay all your taxes on time. If you do this you will build good credit and before you know it you will be in the minority of people who are in a position of financial power able to make strategic maneuvers at key moments.