Here’s the difference between business and personal credit and what you need to know to ensure your business can start financing purchases.
Where business credit differs from personal is how it’s tracked and how the scores are calculated. Unlike personal credit, different companies offer different versions of business credit scores. They don’t all follow the same general rules and methods.
To make understanding business credit more complicated, your business credit isn’t always reported. Sometimes, it may could mix with your personal credit depending on how you applied for the credit. That’s why it’s super important to understand how business credit works and how to begin building it. That’s why you’re here and why you’re learning this important information.
10 Things You Need To Do In Order To Build Your Business Credit
1) Establish your EIN.
An EIN (employer identification number) identifies your business when you apply for business credit. A business EIN is also used to file tax returns and fill out W-9s. While some companies may allow you to apply for credit using your Social Security Number (SSN), keep in mind that won’t help you build business credit at all. Here with poor personal credit it’s really not an option, anyway.
Make it a habit to always apply for business credit using your company’s name and company’s EIN. By using this process, it gives you the best shot at building your business credit.
2) Register with Dun & Bradstreet.
Once you’ve established your business with Dun & Bradstreet, you’ll have an avenue for building your business credit rating. Business credit bureaus usually start your credit file when creditors report business credit information. By completing this step you will begin the process yourself with Dun & Bradstreet. Later down the road you can get a D-U-N-S number, their way of tracking your business credit.
Even if you don’t get a D-U-N-S number right away, they will eventually start a file on your business on data reported to them. Eventually they will track your company even if you never apply for a D-U-N-S number. Getting a number manually may speed up the process, though.
3) Get a business bank account.
When you’re a company owner, it’s always best to keep your personal and businesses’s finances completely separate. This makes paying your businesses bills much easier by having a business bank account.
This procedure of paying your business’s bills using its own account can also help business credit reporting agencies feel you’re a more established company. More established than one without a business banking account. Here are a couple of banks that offer accounts for businesses that may fit your needs.
Chase Business Complete Banking takes care of the basics, so you can focus on growing your business.
With convenient access to over 16,000 ATMs, and with over 4,700 branches and 24/7 Chase customer support from a bank you trust, it’s hard to beat Chase for Business.
There are times they present promotional offers with hundreds of dollars in business checking account related bonuses just to open a business credit account. It’s worth a look.
Bank Novo is backed with FDIC insurance, has no hidden fees, no monthly fees or minimum balance requirements, simple, easy-to-use mobile apps, apply in under 10 minutes, human-powered customer service, free transfers, mailed checks, and incoming wires, integrates with other small business tools, refunds all ATM fees, and has thousands of dollars in exclusive perks.
4) Get a business phone number.
Lots of small businesses use their personal cellphones when making business phone calls. Some may even use old landlines. It makes sense to use your cellphone, and it’s inconvenient to make a change. Owning a business in the 21st century may require a better solution.
The alternative to personal cellphones and landlines is VoIP, or Voice over IP. This option will give your company a more professional feel and even an upper edge on businesses who choose not to use this option. If you’re looking into separating your personal phone from work, but you aren’t sure if it’s the best decision, here is a proven option. Try looking into RingCentral.
5) Apply for trade lines with your vendors.
What is a vendor tradeline? They are tradelines in the business credit setting referring to credit accounts that are offered by vendors and suppliers.
Suppliers are many times the first link in a supply chain, existing strictly in a B2B relationship. By contrast, a vendor is a business or person who purchases products from a company and then sells them to someone else.
6) Apply for a business credit card.
How To Get A Card Without A Personal Guarantee
For most small business owners, getting a company credit card without a personal guarantee (the issuer will check your personal credit history) probably won’t be a straightforward task. Many business credit cards on the market require some sort of personal guarantee. Small business owners will usually need to step into corporate card territory to find a card that doesn’t require a personal guarantee.
A personal guarantee is an individual’s legally binding promise to repay credit issued to their business with their own personal assets in case the business cannot pay off debt. This means that they will hold the business owner personally liable for charges on the credit card balance if the business goes under or otherwise cannot make payments.
These non-personal guarantee credit cards are reserved for larger businesses with an established credit history. Truth be told, the average small business owner won’t be able to successfully apply for a credit card with no personal guarantee.
They market credit cards without a personal guarantee as corporate credit cards.
With that said, in order to get a business credit card (non-corporate credit card) you must provide your Tax ID Number (TIN) or Employer ID Number (EIN) along with your Social Security number on the business credit card application. To qualify, a business credit card applicant must also be an owner, officer or partner of a business, which may include sole proprietorships, independent contractors and non-profits, in addition to corporations, partnerships and LLCs. Then, if you get approved for a business credit card, your card will list your company’s name in addition to your own.
7) Consider a secured business card.
What Is a Secured Business Credit Card?
They designed secured credit cards for people who don’t have good credit or who have very little credit history. A refundable deposit protects the card issuer in case of default, and responsible use of the card can help the cardholder establish and build credit. They provide business credit cards only for business expenses.
8) Try a small working capital loan.
Know your business needs ahead of time. To prepare, here are a few simple questions a loan specialist will ask. Most brokers will require a lot more.
What are you borrowing the funds for?
How soon do you need funding?
How much funding do you need?
How long of repayment terms do you need?
What structure of loan would work best for you?
There are financial records you will need to pull together to make a complete loan application. Regardless of where you go for the loan, banks are likely to want to see an extensive list of items, but not every lender is going to put equal emphasis on every element in the list.
Bank Statements. Balance Sheet. Proof of Time in Business. Your Personal Credit Report.
Tax Returns (Personal and Business). If a profit/loss statement and balance sheet are not requested, then lenders are usually quick to ask for tax returns that show a certain income level. Some banks will ask for both, but many will not.
There are several other requirements that banks sometimes put in place for loans, including requirements about the submission of a business plan, proof of property ownership, or even collateral for the loan. These requirements vary from bank to bank, and they don’t make up the core requirements most lenders use.
9) Pay early and ideally in full.
Of course this is common sense, but it needs to be said. On the consumer credit side, holding a balance of 30% and paying the minimum every month can actually boost credit but in business credit it’s best to pay early and pay the entire balance if possible.
10) Check your business credit reports regularly.
This important activity has a free and paid option. I say use the free methods no matter what, and as time goes on choose a paid version because they usually provide much more information.
Free business credit score services.
Paid business credit score services
Here’s the typical information found in a business credit report, according to the Small Business Association (SBA):
Company information including number of employees, sales, ownership and subsidiaries. Historical data of the business. Business registration details. Government activity summary. Business operational data. Industry classification and data. Public filings, such as liens, judgments and UCC filings. Past payment history and collections. Number of accounts reporting and details.
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