Small Business Credit – The Ten Steps to Build Credit For Your Business
A lot of small business owners do not take the time to establish business credit for their organization. When we first embark on our business, our personal credit and assets are key resources that enable us to access credit and capital for our enterprise.
The sooner you develop business credit, the better!
Good business credit is the lifeblood to your organization. In these economic times, we begin to understand the crucial need to establish business credit. It makes a world of difference in regards to the interest rate you receive, how much capital you have access to, and setting terms on lease payments, insurance premiums, and business loans.
At some point, in the life cycle of your organization, you should begin to build business credit as a separate and distinct entity from your personal credit. The two business credit firms are Dun and Bradstreet and Experian. Although, I am not partial to one or the other, I used Dun and Bradstreet to build business credit for my company at the end of my first year of being in business.
Recently, I applied for another business credit card. They still used my personal credit as a reference. Your business must be in existence for at least three years before the financial institutions, creditors, and trade providers begin to use your business credit as a primary resource.
Here are the ten steps to build business credit:
1. Establish your business as a separate entity (i.e C Corp., S Corp., LLC.)
2. Find out the requirements for the lenders and credit bureaus.
3. Establish credit with vendors base on your personal credit. Have them report your transactions to the credit bureaus.
4. Take out a loan through SBA (Small Business Administration) or a business association
5. Obtain a Dun & Bradstreet D-U-N-S number.
6. Do business with small vendors. Did you use a caterer for your last holiday party? Do you have a water bottle company that delivers water bottles to your office on a weekly basis? Do you have a small print shop that you utilize for copies and binders? Find out if your payment history with major vendors are already being sent and reflected in your credit history. Sometimes, they are and sometimes they aren’t. If they aren’t, then utilize them as one of the vendors to be contacted by Dun and Bradstreet or Experian.
7. Once you have established a payment history with these small vendors, submit their information to Dun & Bradstreet. These vendors must be members of Dun & Bradstreet as well in order for you to utilize them as a reference. Dun and Bradstreet will call them to verify your payment history with them. Dun & Bradstreet will ask you for six vendors. Give them more. Some of your vendors may refuse to submit your payment history.
8. Obtain a Paydex score. Make sure you have at least four vendors reporting your payment history so that you can obtain a Dun & Bradstreet rating. The Dun & Bradstreet rating is different from the Paydex score. It is critically important because this is what institutions use to determine your financial standing.
9. Check your business credit twice per year to ensure that your records are accurate.
10. If necessary, identify ways you can improve your business credit.
If you take heed and follow these ten steps, you will surely be on your way to controlling your own financial destiny! Much Success!