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How to Build Corporate Credit and Run a Corporation

Business owners old and new often wonder how to build corporate credit.  This is just one of the many questions that pop up when running a corporation.  Thankfully, there is more information available than ever before on running a corporation, from building corporate credit to understanding your financial statements, and everything in between.  

5 Tips for How to Build Corporate Credit and Make Your Corporation Fundable

Even if you are already up and running, you may be surprised at how some of these tips can help you.  There is a lot going on out there that can affect your business. Most of it you may not even realize.  There are several pieces to the puzzle. Often business owners cannot tell or see when one doesn’t fit simply because they can’t see the whole picture.  Most often, they don’t even know there are parts of the puzzle they cannot see. If they do know it, they have no clue how to gain access, find the issues, and fix them. 

Whether you are building your corporation in Delaware, which has long been a business building giant,  Wyoming, which is fast catching up, or any other state, these tips can be useful.  

How to Build Corporate Credit and Fundability Tip 1: Set Up Your Business for Success

Let’s go back to the puzzle example for a minute.  When you are first starting a large, complicated jigsaw puzzle, you don’t set up just anywhere.  You try to find somewhere that will ensure successful completion. Think about it. Would you just dump out the pieces on the floor and get to work? 

This would for sure be the fastest way to get started, but it would not foster success. Pieces could get kicked around and lost under furniture.  It would take forever to find where the pieces you have fit, and those walking by could unknowingly cause all kinds of trouble with one ill placed foot. 

Seasoned puzzlers know that you set up on a table that is used only for the puzzle.  You gently put the pieces on the table, and you take the time to turn each one over while separating the edges from the middle.  

When building corporate credit, you have to set your business up to be fundable and successful, just like with a puzzle.  If you don’t, you could end up having to do a lot of work over again. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Steps to Setting Up a Fundable Business

Of course, if your business is already in operation and you find you are lacking in some of these areas, you may end up needing to do a little extra work to get things on the right track.  Take stock now, and get busy making sure all of these things are in place. 

A dedicated business address and phone number is necessary.  

Using your personal address and phone number will not work. Make sure your business contact information is listed in the business 411-directories as well.  This is important for more than just making sure customers and potential customers can get in touch with you, as you will see later. 

Your business needs an EIN.

An EIN works like your personal SSN, but it is only for your business.  Many business owners think that it’s fine to just use their SSN, especially in the beginning.  However, once you start looking into how to build corporate credit and how to make your business fundable, you’ll see that you definitely need to get an EIN.   You get an EIN for free, easily, at IRS.gov. 

Incorporation is a must. 

This is hard for some new business owners to swallow, and if you are reading this and there is only one thing on the list you need to work on, my guess is this is it.  Here’s why. It is so easy and affordable to run as a sole proprietorship that a lot of business owners never give it a second thought.

If you are currently operating as a sole proprietor, be aware that you will lose the time in business you acquired while operating as a sole proprietor.  In addition, any payment history, negative or positive, will be lost as well. You will have to start over building business credit at square one. This occurs because a corporation is a separate entity from the owner. 

In addition to tax benefits, it also helps protect your personal assets in case of a bankruptcy, because your business is a separate entity on its own.  When it comes to building business credit, that separation is a key piece of the puzzle. It ensures that business accounts report on your business credit and not you personal credit. 

It is necessary to incorporate, but it doesn’t matter which form of incorporation you choose when it comes to building corporate credit.  An LLC, S Corp, and C corporation all function the same way for this purpose. Make the decision based up how much liability protection you need and your budget, as they all offer different levels of protection at varying costs.  You do have to choose one though. 

A Note About Registered Agents when You Incorporate

When you incorporate, you will have to list a registered agent.  It’s probably not a good idea to list yourself. It may seem easier, but there are several reasons this doesn’t really work well. 

First, you have to list an agent for each state your business is registered in.  If you register in more than one state, obviously you cannot be listed as the agent in each one. You can only live in one place at a time. 

Next, a registered agent has to have a physical address.  A P.O. box will not work. Additionally, you run the risk of letting something slip through the cracks.  This is especially true if you are trying to coordinate with agents in several different states. There is a lot to keep up with.  The better option is to hire a registered agent service. They can easily coordinate in different states, offer a physical address, and ensure you have all the information you need when you need it. It’s an extra cost, but absolutely worth it.

Open a business bank account. 

This isn’t just an account that you call your business account but use for personal stuff too.  Your business needs a dedicated, official business bank account. Not only will it offer the separation needed for when you dig into how to build corporate credit and make your business appear fundable, but there are other benefits as well.  For example, there are some types of funding you cannot access without a business bank account, like a merchant cash advance.  

In addition, many lenders and business credit cards want to see a business bank account.  It will be helpful to already have business expenses separate when you do your taxes as well. 

Don’t forget to get a D-U-N-S number.  

This is huge when you want to build corporate credit.  The D-U-N-S number is a number that Dun & Bradstreet issues to each company in its database.  You cannot have business credit with D&B unless you have this number. Since they are the largest and most commonly used business credit reporting agency, you definitely need it.  You can apply for free on their website. 

Get a professional business website. 

This has to be more than just something you throw together on a free hosting service.  You need to have someone professionally design and launch your site, and pay for hosting.  The goal is to make your business appear fundable to lenders, and if a lender does any research on your business and either cannot find a website, or finds a bad one, it will not look good.  

How to Build Corporate Credit and Fundability Tip 2: Consistency Across All Channels

Many applications for business credit are denied for suspicion of fraud rather than for a poor credit score.  How do you avoid this? Setting up your business properly is a great start. There is a little more to it however.  

Lenders and credit reporting agencies have access to way more information than you realize. If something doesn’t match up, it is going to throw up red flags.  Your business name, contact information, and phone number should be the same everywhere. That seems easy, but consider how much is really out there: 

  • licenses
  • insurance
  • 411-directories (Remember I told you it was about more than just people being able to find your contact information.)
  • rent or mortgage contracts
  • business website
  • other public records

Take some time to check all of these things to ensure that everything lines up.  Another thing that seems small but can actually cause trouble in the world of corporate credit and fundability is the business email address.  You definitely need one, but it should be the same as the owner’s. It can’t be from a free service like Gmail or Yahoo. Pay for an email address that has the same URL as the business website.  

How to Build Corporate Credit and Fundability Tip 3: Work in the Right Order

The biggest piece of this corporate credit building puzzle is working the right order.  If you are an existing business, you probably already have some business debt. Chances are though, unless you have already followed these steps, it is in your personal name and thus affecting your personal credit and not your business credit. 

When you start researching steps to building corporate credit, you’ll likely starting seeing terms like vendor credit tier, retail credit tier, fleet credit tier, and cash credit tier. These are terms that relate to what order you should work in when applying for credit in your business name.  If you immediately begin by applying for standard business credit cards with no limitations, you will be repeatedly denied. This is similar to trying to put together the center of a jigsaw puzzle first, without a picture for a guide. You’ll never get it. 

Every puzzler knows you work the corners first, then put the edges together and work from the edges in. When it comes to how to build corporate credit, you start at the bottom tier and work your way up. 

The Vendor Credit Tier

This is the bottom tier.  It helps you get the ball rolling.  You see, corporate credit doesn’t build passively like consumer credit does.  This means, unless you have actively worked at building it, you likely have no credit in the name of your business. It is almost impossible to get credit without credit, so what do you do? Then answer is the vendor credit tier. 

This tier is made up of retailers that will extend net 30 terms on invoices without a credit check. The best part is, they will report your payments on these invoices to the business credit reporting agencies like D&B, Experian, or Equifax.  This, in turn, begins to build your corporate credit score. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

The Other Tiers

corporate entity credit Credit Suite

Once you have 8 to 10 retailers from the vendor credit tier reporting, you can work in to the next tiers.  After vendor credit comes the retail credit tier.  This includes credit cards from retailers that only allow you to use the cards at their stores.  For example, you can only use an Office Depot card at Office Depot, Office Max, or on those websites. 

Get a few of those under your belt and you can apply for cards in the fleet credit tier.  This tier includes cards from companies like Fuelman and Shell that only allow you to use them for automobile repair and maintenance costs and fuel.  

Once you have several of these reporting you are ready for the final piece of this particular puzzle.  That’s the cash credit tier. These include standard business credit cards that have lower rates, rewards, and no limits on where you can use them or what expenses you can use them for. 

How to Build Corporate Credit and Fundability Tip 4: Make Responsible Decisions

If you complete all of these steps you will have strong corporate credit and a fundable business.  However, it doesn’t stop there. Indeed, at every step along the way and into continuity thereafter you have to make responsible decisions in every area of your business.  

This is of particular concern when it comes to how to build corporate credit.  The reason is, you are racking up credit accounts left and right in an effort to build a strong business credit score. During this process, there is a huge potential for a couple of big blunders.  

One trap that is easy to fall into is buying things that do not really benefit your business just to build the credit.  It’s seems like and easy trap to avoid, but you can be in it before you know it. Of course, you have to use the credit for it to do what you need it to do, but do so wisely.  Make a conscious effort to think about how each and every purchase will benefit your business and help it grow. 

The other potential blunder is to dig the debt hole too deep.  None of this will matter if you can’t make your payments consistently on-time.  In fact, it will do more harm than good. Take some time to figure out how much you can afford in debt payments each month and spread that out over the accounts you are using for credit building.

Also, use business accounts only for things you would buy anyway.   When you order from vendors in the vendor credit tier, order only things you are already using in the course of everyday business. Use the same rule of thumb for cards in the other tiers as well.  There is no reason to accumulate unnecessary debt.

Pay Attention to Financials

There are a lot of business owners out there that do not understand what their financial statements are telling them about their business. If they pay any attention at all to them, they are simply relying on what their accountant or bookkeeper tells them.  

It is essential for a business owner to understand their business financial statements.  Without this understanding, it is almost impossible to make responsible decisions. 

How to Build Corporate Credit and Fundability Tip 5: Monitor Your Credit

Credit monitoring is important both while you are building corporate credit and after you have a strong, established score. At each step of the credit building process you need to know which accounts are reporting.  This is how you will know it is time to move on to the next tier.  

Credit monitoring is also essential to maintaining that consistency that is needed for fundability.  If you see a mistake on your credit report, you can have it corrected. If you notice old information, you can update it. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

How to Build Corporate Credit and Making Your Corporation Fundable Go Hand in Hand

It’s true.  You can have corporate credit and not be fundable, but your business cannot be fundable without strong corporate credit.  The best way to ensure your business is fundable is to start working to build strong corporate credit from the very beginning.  Many of the steps to building fundability and building corporate credit are the same, and you need both to run a successful business.  

 

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It is Necessary to Build Business Credit with EIN, Not SSN

In today’s world we all have a number.  Every number associated with us, whether it is intentional or not, identifies us.  We have a Social Security number. We have loan numbers. There are PIN numbers. Even our phone number and street number can identify us in some way.  Because of this, when we want to build separate credit for a business, we have to get that business its own number. That number is known as an Employer Identification Number, or EIN.  You have to build business credit with EIN, not SSN.

Make Sure Accounts Report to Business Credit, Not Personal Credit, by Learning to Build Business with EIN, Not SSN

Before you can build business credit at all, you have to know what it is, and why you need it.  Maybe your personal credit is sufficient to run your business and you don’t think you need business credit.  Let’s take a closer look. 

What is Business Credit?

Business credit is credit that applies only to your business and its payment history.  It does not take into account your personal payment history or personal credit. It is a credit score based on the merits of your business alone, in your business name.  

Why Do You Need Business Credit? 

Regardless of what your personal credit looks like, you need business credit if you own a business.  Of course, this is obvious if your personal credit isn’t great. You need strong business credit to get funding for your business. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

What if your personal credit is great though?  Maybe you have already gotten some funding for your business based on personal credit, and you don’t see the big deal.  You didn’t need business credit to get that.  

The thing is, if you try to fund your business fully on the merits of your personal credit, your personal credit score will likely suffer even if you pay all your bills on time.  That’s because your personal credit score is affected by your debt-to-credit ratio. That is the amount of debt you have in relation to the amount of credit you have available. If you have $10,000 in credit available to you and a balance of $5,000, your debt-to-credit ratio is .5.  

The problem with running a business is that the expenses are much greater than personal expenses, by nature.  Personal credit accounts generally have lower limits than business accounts. This means that if you are trying to run a business on personal credit, your debt-to-credit ratio could stay high despite paying bills on time. That, in turn, will negatively affect your personal credit score. If you build business credit with EIN, you can avoid this issue and protect your personal credit score.

What You Need to Know About Reporting

To build separate credit for your business, two things have to happen.  First, your business has to be set up in a way that when you apply for credit for your business, those accounts report in your business name to business credit reporting agencies.  The way your business is set up also dictates whether those agencies recognize your business and record a score. If your business isn’t set up properly, those accounts will just report to your personal credit, even if you use the name of your business when you apply.

The next thing that has to happen is that you need to find accounts that will extend credit and report payments to the business CRAs without a credit check.  You need to be able to apply with only your business information, get approval, and have your payments reported. It is often difficult to get approval without a credit check. If they check your business credit initially, you will not have any.  That’s the goal right? You need to build business credit, but you typically need credit to get credit. We know a tip for how to get around this, and you have to build business credit with EIN to do it.  

How to Set Up Your Business to Build Business Credit with EIN

At the core, the only thing you really have to do to get an EIN is to apply for one here. It’s fast and free.  That’s not the whole story though when you want to build business credit with EIN. While the EIN is essential to building separate business credit, if you do not handle the other steps necessary, it will not do any good.  All the pieces of the puzzle have to be there for the picture to be complete. 

What are the other pieces of the puzzle necessary to build business credit with EIN?

Build Business Credit with EIN: Separate Contact Information

A business has to have its own contact information.  Sharing a phone number and address with the owner will not work when trying to build business credit. The owner’s phone number and address ties directly back to personal credit.  

It isn’t necessary to get a separate phone or even a location however.  You can use a VoIP business number that will ring to your regular number.  There are also virtual office services available that will give you a physical mailing address that you can use.  Many of these offer other services as well, such as live receptionist services and meeting spaces. 

Be sure to list your business contact information in the 411 directories.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Build Business Credit with EIN: Incorporation

To build business credit with EIN, a business must formally incorporate.  It is the most sure-fire way to separate a business from its owner. Whether you choose to incorporate as a corporation, s-corp, or LLC will depend on a couple of things.

First, any of these options work to help build business credit with EIN.  However, they offer different levels of protection and cost. For example, organizing as a corporation will cost the most, but it offers the most liability protection.  An s-corp is a little less costly, but it also offers a little less protection. If you choose to become an LLC you will have the least liability protection but it also is the least expensive option.  Choose the one that fits your budget and liability protection needs the best.

Build Business Credit with EIN: Get a D-U-N-S Number

Dun & Bradstreet is the largest and most commonly used business credit CRA.  The problem is, if accounts are reporting your payments to D&B and you do not have a D-U-N-S number, it will not do any good.  You have to have this number to have a credit file with Dun & Bradstreet. 

Build Business Credit with EIN: Open a Business Bank Account

This is huge for a number of reasons.  First, those accounts that will offer credit without a credit check often want to see a dedicated business bank account with a minimum balance.  Second, it helps keep business and personal expenses separate for tax purposes. 

Be sure to use your EIN and business contact information when you open the account.

Build Business Credit With EIN: Get Accounts Reporting

Once you have an EIN and you have taken the other steps necessary to set up your business as separate from you as the owner, it is time to get accounts reporting to the business credit agencies.  This is where the EIN gets put to good use.  

There are certain vendors, called starter vendors, that will extend net 30 terms without a credit check.  They will also report those payments to the business CRAs. The trick is, you need to set up accounts with them using your business information, including using your EIN and not your SSN.  If you put your SSN on there things could get confused and the payments may report to personal credit rather than business credit. 

We call this the vendor credit tier.  Go here to find out more about the credit tiers and starter vendors. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Build Business Credit with EIN: A Word About Credit Cards

After you work through the business credit tier, it will be time to apply for business credit cards in the other tiers.  You can find out more about the process and the other credit tiers here. However, you may need to use your SSN for this anyway. Mostly it’s for identification purposes, but sometimes they want to check personal credit as well.  This is because most credit cards require a personal guarantee even for business cards. That doesn’t mean that those accounts will end up on your personal credit report, but until your business credit is strong enough from working the process, your personal credit could affect approval.

There are a few cards, however, that do not require a personal guarantee.  

Business Cards That Do Not Require a Personal Guarantee 

Brex Corporate Card

This card is a stand out.  It isn’t connected to a specific retailer so it is much more flexible than other business credit cards that do not require a personal guarantee.  In addition, you can earn rewards! Specifically, you can earn one point per dollar on purchases. You can also get credits and discounts on certain services . 

One condition is that you have to pay the balance in full each month.  It isn’t revolving credit in the traditional sense. You cannot carry a balance. 

Even though they do not require a personal guarantee, Brex knows exactly what it is looking for in a cardholder. They want innovative businesses that use modern technology. In addition, they want to see a healthy business specific bank account.  It is best if it maintains a balance of $100,000 or more.  

The Brex Corporate Card has no annual fee.  It also offers other reward levels based on the type of spending, in addition to the 1 point per dollar spent on regular purchases.  These include: 

  • 7x points on taxis and ridesharing services
  • 4x points on flights, AirBnbs, and hotels when you book with Brex
  • 2x points on software purchases that are recurring

There is an introductory offer of 30,000 bonus points and card fees waived for life after approval. Other perks include credit for ZenDesk and Amazon Web Services.  There are discounts on WeWork and Salesforce also.

In addition to a business bank account with $100,000 balance, they also want you to have an EIN.

Bremer Bank Visa Signature Business Company Card

The Bremer Bank Visa Signature Business Company Card is an actual business credit card that has no personal guarantee.  It also has high income requirements and still prefers to work with medium to large businesses.  If you are able to get one, you will enjoy no annual fee and a rewards program. 

To qualify, you must have at least $1,000,000 in annual revenue and $350,000 in net annual income for the previous two years. 

Shell Small Business Card

The Shell Small Business Card is only good at Shell gas stations, and it offers no rewards.  The best thing about it other than it being one of the few business credit cards that does not require a personal guarantee, is that it can be a nice tool for employees on the road a lot.  It offers options such as purchase limits and specific station limitations.  Also, it can be a convenient tool for companies with employees who are always on the road. There is no annual fee, but cardholders have to be associated with a government entity, nonprofit, or earn at least $1 million annually for the past 3 years. 

Sam’s Club Business Mastercard

Surprisingly, the Sam’s Club Business Mastercard is one of the more flexible options for business credit cards that do not require personal guarantee.  You are not limited to using it only at Sam’s Club. In fact, you can use it anywhere they accept Mastercard.  It also offers great rewards on gas, dining, and travel.  

There is no annual fee, but you do have to have a Sam’s Club membership.  Currently, you get a $20 statement credit if you spend $50 or more at Sam’s Club the same day you open the card.  Rewards include 5% cash back on gas up to $6,000 in a year. After that, you get 1%. There is also a 3% cash back on dining and travel rewards, and 1% on all other purchases.  

To get this card, the business must make $5 million or more per year.  It also must be in operation for at least 2 years and have more than 10 employees for there to be no personal guarantee requirement. 

Office Depot OfficeMax Business Credit Account

Similar to the Shell card mentioned above, the Office Depot OfficeMax Business Credit Account is not known for its flexibility.  It is only good at Office Depot stores, officedepot.com, and OfficeMax.  They do not offer rewards, but there is an introductory bonus. If you spend at least $150 in the first 60 days after opening the account you get a $50 statement credit.  

It is Possible to Build Business Credit With EIN, You Just Have to Know Where to Start

build biz credit with EIN Credit Suite

You have to use your EIN, not your SSN, to build business credit.  You cannot have separate business credit if you keep applying for credit with your SSN.  Your business has to have its own identifying number. That’s the EIN. While this is the only step necessary to build separate credit, it is a necessary step.  Without and EIN, the other steps will make no difference at all. 

After you have your EIN and your business set up as a separate, fundable entity, look for those starter vendors that will issue credit and report payments to build your score. 

 

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NuCypher (YC S16) is hiring a lead engineer to help build a new cryptosystem

NuCypher is a cryptography company that builds privacy-preserving infrastructure and protocols. A successful candidate does not need to have prior experience in cryptography as they will work very closely with a cryptographer to build out the system. However, they should be a quick learner and comfortable around math (e.g. linear algebra, probability, number theory). A … Continue reading NuCypher (YC S16) is hiring a lead engineer to help build a new cryptosystem

How to Build PAYDEX Score Fast: And Other Dun & Bradstreet Reports You Need to Know About

If you know anything about business credit is it probably about the Dun & Bradstreet PAYDEX score.  D&B is the largest and most commonly used business credit reporting agency. The PAYDEX score is the score from Dun & Bradstreet that lenders use most often.  This is likely because it is the most comparable to the consumer FICO, so they feel like they can easily understand the information it is telling them. Follow these tips to build PAYDEX score fast.<

Build PAYDEX Score Fast, but Don’t Forget the Other D&B Reports

Your Dun & Bradstreet report is among the first things a lender will look at when determining whether to do business with you. They offer database-generated reports to their clients to help them decide if you, a potential vendor, supplier, or business partner, are a good credit risk. 

A company will rely on the D & B Report about your firm to make informed business credit determinations and avoid bad debt. Dun & Bradstreet takes several factors into account in creating such a report. Let’s look at all of these factors in turn, starting with the PAYDEX.  Afterall, you cannot understand how to build PAYDEX score fast without understanding what exactly the PAYDEX is.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

PAYDEX Score

The PAYDEX Score is Dun & Bradstreet’s score that tells the lender how well your business has paid the bills over the past year. D & B bases this score on trade experiences documented by vendors.  It ranges from 1 to 100. The higher the score, the lower the perceived risk.

We will discuss this more in depth later, but the quick answer to how to build PAYDEX score fast is to pay your business obligations on-time and consistently. The trick is getting those payments reported to D&B and not personal credit reporting agencies.

In addition to the PAYDEX, D&B uses the following. 

Delinquency Predictor

To estimate how likely a company is to be late in paying debts, Dun & Bradstreet uses predictive models. They use predictive scoring, which takes historical data to try to predict future results. They do this by figuring out the potential risk of a future decision, then they compare the historical information to a future event. Thus, predictive scoring only represents a statistical probability, and not a guarantee.

Financial Stress Percentile

The Financial Stress Percentile compares companies in categories such as region, industry, number of employees, or number of years in the business. Financial Stress Score Norms determine an average score and percentile for similar firms. 

Financial Stress Score

Dun & Bradstreet generates Financial Stress Scores to predict how likely it is a business will fail over the next twelve months.  These scores range between from 1,001 to 1,875. A score of 1,001 represents the highest probability while a figure of 1,875 shows the lowest probability of business failure.

Financial Stress Risk Class

This is a rating from D&B that places business in classes from 1 to 5. Class 1 includes businesses least likely to fail, while class 5 includes those firms most likely to fail. Therefore, a D & B customer can rapidly divvy their new and existing accounts by risk and then determine how to proceed. If your business is shown as being Discontinued at This Location; Higher Risk; or Open Bankruptcy, you are going to automatically get a 0 score.

Financial Stress Score Percentile

This score has a 1-100 ranking where a 1 percentile is most likely to fail and a 100 percentile is least likely to fail. If D&B identifies a company as financially stressed, that indicates it has stopped operations following assignment of bankruptcy, voluntarily withdrawn from business operation with unpaid obligations, or closed up shop with a loss to creditors.  It could also mean a company is in receivership, reorganization, or has made some sort of an arrangement for the benefit of creditors.

Supplier Evaluation Risk Rating

The Supplier Evaluation Risk Rating (also called a SER Rating) predicts how likely it is a company will get legal relief from creditors or end operations without paying creditors in full over the next twelve months. Once Dun & Bradstreet calculates the Financial Stress Score percentile for your company, they apply a second set of rules to calculate the SER Rating, on a scale of 1 – 9. A 1 means your company is least likely to fail to pay suppliers. A 9 is the opposite, showing the highest likelihood.

Credit Limit Recommendation

A D&B Credit Limit Recommendation includes two recommended guidelines:

  • A conservative limit, recommending a dollar benchmark if a company’s policy is to extend less credit to minimize risk and
  • An aggressive limit, suggesting a benchmark if a firm’s policy is to extend more credit with potentially more risk.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

D & B bases these dollar guideline levels on a historical evaluation of the credit demand for similar businesses, with respect to employee size and industry. Dun & Bradstreet assesses how likely a business is to continue to pay your according to the agreed-upon terms, and how likely it is to experience financial stress in the next twelve months.

D & B Rating

A D&B Rating helps lenders swiftly assess a business’s size and credit potential. Dun & Bradstreet bases this rating on details in your company’s balance sheet, plus an overall evaluation of the firm’s creditworthiness. The scale goes from 5A to HH. 

Composite Credit Appraisal

This number, between 1 through 4, makes up the second half of your firm’s rating. It reflects Dun & Bradstreet’s overall rating of your business’s creditworthiness. They analyze company payments, financial information, public records, business age, and other factors.

If your company does not supply current financial information, you cannot get a Composite Credit Appraisal rating of better than a 2. The 1R and 2R rating categories show company size only based on the total number of employees.  Consequently, these ratings are assigned only if your company’s file does not contain a current financial statement. Employee Range (ER) Ratings apply to specific lines of business not lending themselves to categorization under the D & B Rating system. These kinds of businesses receive an Employee Range symbol based upon the number of employees and nothing else.

In general, when Dun & Bradstreet does not have all of the information they need, they will show that in their reports. However, omitted information does not necessarily mean your firm is a poor credit risk.

D & B Data

Finally, any report is only as good as the data it originates from. Dun & Bradstreet’s database includes over 250 million companies around the world. It includes around 120 million active companies and about 130 million companies which are out of business but kept for historical reasons. D & B continuously gathers data and works to improve its systems to ensure the greatest degree of accuracy feasible. Businesses should provide D&B with a  complete financial statement to ensure as accurate a report as possible.

Build PAYDEX Score Fast: Practical Tips

While it is tremendously helpful to understand all the different reports Dun & Bradstreet can generate for your business, when it comes to getting funding you need to know how to build PAYDEX score fast.  Keep in mind however, fast is relative. Will it take years like it does to build a personal credit score? No, it won’t. Will it happen overnight? That’s a resounding no as well.  

It also will not happen on its own.  You cannot passively do business and expect to build PAYDEX score fast.  You have to take intentional steps toward building your business credit score.  It’s a process, and it starts with how your business is set up. Some of these steps may already be done, as often they happen in the course of opening a business.  Some of them however, may not have seemed necessary at the time. When it comes to building PAYDEXs however, they are absolutely necessary. 

Regardless of where you are in the life of your business, it is never too late to take the steps necessary to build PAYDEX score fast. 

Build PAYDEX Score Fast: Set Up Your Business as a Fundable Entity

Many times, in the early days of a business, business owners find it easy to run the business as an extension of themselves.  They operate as a sole proprietorship, using their own address and phone number as contact information. There seems to be no reason for a separate bank account, and an SSN works just find when asked for. 

To build PAYDEX score fast however, this will not work.  Your business needs to be separated from yourself as the owner.  It needs to appear to lenders to have fundability on its own merits, not yours.

Steps to Set Up Your Business as a Fundable Entity

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Separate Contact Information

Contact information is an identifying factor.  If you apply for credit with your personal address and phone number, that application is going to pick up you’re your personal credit report. Your business needs its own phone number and address.  If you don’t have an actual location or separate phone line, you can still accomplish this. There are a number of options for phone numbers that will ring to your current line, and virtual offices offer a physical mailing address along with many other services. 

Get an EIN to Use in Place of an SSN

This is easy to do and completely free.  It can be done online at IRS.gov in a matter of minutes.  The point is to use this number, instead of your social security number, to apply for credit in your business name.  This way, the account will report your information to the business CRAs, including Dun & Bradstreet.

Incorporate Your Business

Whether you choose to incorporate as a corporation, S-corp, or LLC does not matter when it comes to fundability.  Make that decision based on other factors, like how much liability protection you need and your budget. You do need to choose one though. Operating as a sole proprietorship will not work well if when building business credit.

Get a D-U-N-S Number

If your follow every single step and do not do this one, you will never build PAYDEX score fast.  In fact, you cannot have a PAYDEX score at all if you do not have this number. It’s free also, and easy to get on the D&B website.   However, they will try to sell you a ton of other services that you really do not need.  Just get the number and move on. 

Open a Separate Business Bank Account

Not only will this help you keep your business expenses separated from your personal expenses for tax purposes, but it will also help you when you apply for credit in your business name.  Some vendors and lenders like to see a business bank account with a minimum average balance before extending credit.

Build PAYDEX Score Fast: Vendor Credit

Separating your business from yourself is not the whole story. That’s really just laying the foundation that you can build on.  You have to stack the blocks, and they have to be stacked in order. You can’t just follow all these steps and then go apply for regular business credit cards with your business credit.  It still doesn’t exist. 

The key to building PAYDEX score fast is the vendor credit tier. This is how your will initially build your PAYDEX score so that you can apply for credit from those lenders that will want to see a strong score.   

The vendor credit tier includes starter vendors that will issue invoices with net 30 terms without even checking your credit.  Set up your account in your business name, and they will report your on-time payments to the business credit reporting agencies.  It is important to note that not all of them report to all the CRAs, so be sure you find those that report to Dun & Bradstreet if you want to build PAYDEX score fast.  The more of these vendors your have reporting, the faster your score will grow. Remember though, you have to pay on time.  

Build PAYDEX Score Fast: Other Ways to Get Accounts Reporting

At the same time, you can talk to vendors you already do business with.  In light of the fact that you already have a relationship with them, they may be willing to offer net terms without checking credit and report payments.  Check with utilities too. They will sometimes report payments to D&B if you ask. The more accounts you get reporting, the faster your score will build. With each on time payment your score will only get stronger.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

It is Possible to Build PAYDEX Score Fast with the Vendor Credit Tier

This process is not only important for building PAYDEX score fast, but really for building PAYDEX, or any business credit at all.  If you do not separate your business from yourself, any credit accounts you get approval for will report payments to your personal credit.  That doesn’t affect your business credit score. If you follow these steps however, you will be able to build your business credit score on each report, including your PAYDEX report, faster. 

 

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This Thanksgiving Day, Turn Things Around by Learning How to Build Good Business Credit

Many business owners don’t realize that there is even a question of how to build good business credit?  They think that business credit works similar to personal credit. Since business personal credit builds passively by simply with handling credit wisely, they think business credit does the same.  That isn’t the case however. The answer to “How to build good business credit?”can be summed up in one word, intentionally. You must make it a point to build business credit. You have to make it happen. 

How to Build Good Business Credit: Fill Your Cornucopia with Business Accounts

In traditional Thanksgiving Day pictures, you see the ever overflowing horn of plenty known as the cornucopia.  There are breads, fruits, vegetables and nuts pouring out of the horn shaped basket. If you are a business owner, you need two cornucopias.  One is for your business credit, and one is for your personal credit. While you want them both overflowing with healthy accounts, what happens with many is that the business credit one is empty or non-existent.  They think it is there and full, while in reality all the accounts they think are hitting their business credit report are actually hitting their personal report. 

Why Do you Need Two Cornucopias? Does Business Credit Even Matter? 

If you’re wondering why it is important to know how to build good business credit, here is your answer.  The business credit cornucopia can hold more. Let me explain. If you try to run a business with only what is in your personal credit cornucopia, you will not have enough. You will need more than what it can hold. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Here is what that looks like in real life.  Your personal credit cards are going to have lower limits than what business credit cards have.  Business expenses are, by nature, a lot higher than personal expenses. Therefore, if you try to put business and personal expenses on the same credit cards, you are going to overrun your limits.  

Even if you make your payments on time, or even pay off your balances each month, you are likely going to keep hovering near your limits.  Not only does this reduce the funding you have available, but it can also have a negative impact on your personal credit score. Here’s how.  The closer your balances are to your limit, the higher your debt-to-credit ratio is. A high debt-to-credit ratio has a negative impact on your credit score. 

So, this means you need to ask how to build good business credit for two reasons.  First, you may not have enough credit availability to run your business successfully without it.  Second, if you do not build business credit, you could end up ruining your personal credit. Consequently, not only would your business success be in question, but you could lose the ability to do things like buy a house or a car. 

Where Does that Second Cornucopia Come From?

Here is what most business owners do not understand.  You have to intentionally go out and get that separate business cornucopia.  If you don’t, then any business accounts you open will just go straight to your personal credit cornucopia and wreak the havoc mentioned above. So, how do you do that?  How do you establish business credit in the first place so that business accounts report to that, and not to your personal credit? The key is to make your business appear to lenders as a fundable entity, separate from yourself as the owner. 

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How to Build Good Business Credit: Establishing Fundability

The first thing you need to know is, it is easiest to do this as you are establishing your business.  If you are a new business owner just getting started, then set your business up this way on the front end so that you can begin building business credit now. If, however, you are already up and running, it isn’t too late.  You may have to do some backtracking, but it will be so worth it. Either way, this is what has to be done. This is the first part of the answer to the question of how to build business credit. 

Separate Name and Contact Information

This is an essential first step to weaving a separate business credit cornucopia.  Of course, most businesses do not have the exact same name as their owners. The key is, you have to list the business in the business directories under that business name.  In addition, it needs to be listed with its own address and phone number. 

A question often asked about this is, how do you get a separate business phone number and address if you run your business out of your home or online.  Actually, there are several options now for a business telephone number that do not even require you to have a second phone. You can just have your business number forwarded to your personal line. 

As for an address, there are a number of virtual office companies that offer a physical mailing address to businesses for just this purpose.  Typically, they also offer a number of other useful services such as meeting spaces and live receptionist services. 

Get and EIN

When you apply for credit, they always ask for you Social Security Number, or SSN.  If you are applying for credit in your business name, you shouldn’t use your SSN. If you do, that account will automatically relate to your personal credit.  The way around this is to get your business an EIN.  They are free on the IRS website.  You may still need to use your SSN for identification purposes when applying for credit under new fraud regulations, but that needs to be the only reason you use it. 

You Must Incorporate

This isn’t an option.  While it is much easier and cheaper to operate as a sole proprietorship or partnership, you cannot get the separation needed if you do not formally incorporate.  Whether you choose an S-corp, LLC, or corporations will depend on your other needs and budget. Any of them will work for establishing fundability. Still, you must choose one. 

Get a Business Bank Account

When building fundability, you need to have a separate business bank account.  This serves a number of purposes. First, separate from building fundability, this helps you keep your business and personal expenses separate.  That will be a tremendous help come tax time. 

Secondly, some business credit cards want to see a business bank account with a minimum average balance before they will approve credit.  Lastly, it helps lend credibility to the fact that your business is a fundable entity on its own, apart from the owner.

Professional Website and Dedicated Email 

In today’s business world, if you do not have an online presence you do not exist.  Having a poorly executed online presence is just as bad. You need a professionally built, working website.  Pay for design and hosting. The free services are not going to be good enough to help you out here. In addition, you need a dedicated business email address with the same URL as your website.  Free email platforms such as Yahoo and Gmail do not look professional.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Get a D-U-N-S Number

There are several business credit reporting agencies, or CRAs.  The 3 most commonly used are Dun & Bradstreet, Experian, and Equifax.  Of those three, Dun & Bradstreet is definitely the largest and most commonly used.  Before you can have a credit profile with them, you must have a D-U-N-S number.  This is how they identify your business.  

If you do not have a D-U-N-S number, you will not have a credit profile with Dun & Bradstreet, so you definitely need the number.  That’s all you need though. They will try to upsell you on other services, but stay strong and resist. You just need the number, and it’s free. 

How to Build Good Business Credit: Fill the Cornucopia

Once you have your separate business credit cornucopia, it’s time to fill it with lots of yummy accounts to build your business credit big and strong.  That, again, takes intentionality. You cannot just go out and start applying for credit in your business name. It won’t happen. Just as those that celebrated the first Thanksgiving Day had to actively work to provide the food for the feast, so you will have to actively build business credit. To do this, you have to work through the business credit tiers.  

Starting at the bottom tier, you build enough accounts and business credit to move up to the next tier, until you reach the top.  Here is a little more about each tier and what it takes to move on to the next. 

How to Build Good Business Credit Using The Vendor Credit Tier

This is the first tier on your journey to fill your business credit report with accounts.  It consists of starter vendors. These are vendors that will offer your business net terms on invoices without first checking your credit.  Then, when you pay, they will report those payments to the CRAs. This is the second part of the answer to how to build good business credit.  In this way, you can begin to build credit without having credit. 

They will look at other information however.  Some like to see a certain amount of time in business.  Some will want you to place an initial order, or more than one, before they will extend net terms.  Others will want to see a business bank account with a minimum balance. Another thing they sometimes look at is a listing in the business directories.  Starter vendors may require any combinations of these things. Find out more about some of the most common starter vendors here. 

How to Build Good Business Credit With The Retail Credit Tier

After you have 8 or 10 accounts from the vendor credit tier reporting positive payment information to the CRAs, you can apply for credit in the retail credit tier.  These are those cards that you can only use at the specific retail store that issues them. For example, Office Depot cards that you can only use at office depot are in this tier.. 

How to Build Good Business Credit: Continuing to The Fleet Credit Tier

After you have enough accounts reporting from the retail credit tier, you can apply for cards in the fleet credit tier.  These are cards that you can only use for fuel costs and automobile repair and maintenance. Fuelman and Shell are examples of companies that issue cards in this tier. 

How to Build Good Business Credit: Finishing with The Cash Credit Tier

This is the top credit tier.  It’s the goal. Once you have enough accounts reporting from the fleet credit tier you can apply for cards in this tier.  It consists of the standard Mastercard, Visa, Discover, and American Express cards that are not limited to a specific store or type of expense.  

How to Build Good Business Credit: Don’t Let Things Start Falling Out

Even though the overflowing cornucopia makes for a pretty Thanksgiving Day picture, you don’t really want the same effect with your business credit.  If you do not handle the credit you have properly, you’ll start losing control. Be sure to pay accounts on-time. Remember, don’t buy things you cannot afford just to build business credit.  You will end up with the opposite of what you want. Also, be sure you keep an eye on things. You wouldn’t want a bug eating up all that good food in your horn of plenty right? 

Monitor your business credit regularly to ensure there are no mistakes and that everything is up to date.  We can help you with that here.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

How to Build Good Business Credit: May Your Cornucopia Be Full

I think it’s clear at this point.  It takes more than just paying your bills on time to build business credit.  Unlike your personal credit score, your business credit score does not appear passively.  You have to work to intentionally build it. It isn’t a hard process, but it is a process. You have to trust the process and act responsibly.  Now that you know how to build good business credit, it’s time to get started.

 

The post This Thanksgiving Day, Turn Things Around by Learning How to Build Good Business Credit appeared first on Credit Suite.

This Thanksgiving Day, Turn Things Around by Learning How to Build Good Business Credit

Many business owners don’t realize that there is even a question of how to build good business credit?  They think that business credit works similar to personal credit. Since business personal credit builds passively by simply with handling credit wisely, they think business credit does the same.  That isn’t the case however. The answer to … Continue reading This Thanksgiving Day, Turn Things Around by Learning How to Build Good Business Credit