First Steps Toward Creating Business Credit
First, read this article so you know what the differences are between topics such as vendor business credit, business credit cards, business lines of credit and business loans.
For a more indepth discussion andd a step by step plan on how to create busienss credit, visit my new site on the matter
http://www.thecreditmonster.com
Next, let’s explore your choices as far as what business credit options you have:
New Companies
If your company is less than 2 years old you will NOT be able to get unsecured business lines of credit through banks. The only options you can qualify for are credit cards, vendor credit and business loans.
Business credit cards will require personal guarantees and always involve a personal credit check of the shareholders. In other words, if personal credit scores of the owners aren’t great (660+ scores, no bankruptices, no foreclosures, or reposessions within the last 10 years) qualifying for a business credit card is a non-option. If, on the other hand, the personal credit of the majority shareholder is decent, you can take your chances with credit card providers of small to medium sized businesses. Remember that all of these credit cards require a personal credit check. Use this link to go to our recommended site for business credit cards.
For vendor business credit, follow the steps below. All of the following will typically yield the same results regardless of whether the entity is a corporation, LLC, sole proprietorship or a partnership.
1) Get a Tax ID number from the IRS
2) Get a DUNS number through this website. A DUNS number will allow vendors to look up a credit profile for you online. DO NOT get drawn into spending a large amount of money on products such as CreditBuilder, etc. You don’t need them yet.
3) Once you have a DUNS number, start applying for vendor credit lines from Stapes, Quill and NEBS. On each, request a minimum balance ($750 for staples, $300 for the other two).
Once all three vendor business credit lines have been established, make minor purchases and PAY your bill on time. You can ask for additional lines at numerous online retailers such as:
Office Depot
Home Depot
Dell
HP
IBM
Officemax
The secret is to keep your PAYDEX (the way that DNB monitors your business credit) to be above 70. If you can do that, in less than 90 days you can have 5 or 6 vendor tradelines in various amounts. I have heard stories of entrepeneurs having $5K through Dell and $10K through Home Depot in 90 days. Do not go overboard, max out your vendor credit lines and then pay minimal balance. Doing so SEVERELY hampers business credit.
The goal is to keep building business credit and be prompt on payments. That way, your company establishes a long line of credit history. You can start qualifying for equipment leases, credit cards and in 6 months, *secured* credit lines from certain banks with good personal credit scores and business income documentation. If you’re interested in credit lines and have followed the steps above, contact us to open a documented business credit line.
Seasoned Companies
If you’re the owner of a seasoned company (established for more than 2 years) and don’t have business credit, I’d advise you to follow the exact approach I laid out above. But, having had a company for 2 years puts you in the driver’s seat for unsecured business lines of credit if you can couple that with good personal credit.
Most business lines of credit are unsecured and require no income documentation. The two primary drivers for credit decisions are based off of the credit scores of shareholders or owners (majority shareholder or owner must have 75% control of the company to qualify) and the length of time the company has been in business (minimum is 2 years). Contact us and we’ll open one up for you for a flat fee of $500.
A Few Words of Advice
Though there are certain banks that will make an exception for the 2 year seasoning requirement, most will not grant credit to those with poor personal credit and no vendors reporting to the DNB/Experian. Also, personal assets will play a factor. If the shareholder doesn’t have some assets (defined below), the bank will not have anything to put a personal guarantee on and will not approve the loan. 90% of the calls we get for people applying for unsecured business lines of credit are those with:
1) Poor Credit
2) No Assets (non-homeowners, stocks, bonds, cash, IRAs, mutual funds, etc)
3) An Unseasoned Business (less than 2 years old)
4) No Business Credit Score
Though there are exceptions, any 2 of the above together will not qualify for *unsecured* lines of credit programs that require no income documentation. Documented credit lines do exist and we’d be happy to open one up for you.
Filed under: Business Credit
My wife and I had our own business from ‘93 to ‘05 due to IRS and Work Comp insurance for 200 employees in ‘05 the IRS levied our bank account and froze about $500,000 which just litterally bankrupt us and we lost everything including cars and our home this past Jan. My wife has had a bout with cancer,thank God she made it through that ordeal but it just has not been easy on her trying to cope with the embarassment and humiliation of losing everything.would like to start a small business this time such as flipping houses. need help! Thank’s Eric
Hi Eric:
Firstly, I am sorry that you and your family have gone through so much in the past. I hope that things will improve for you this year and in the coming years…
As far as your question is concerned — BK, foreclosures and repos, make it extremely tough for you to get a business loan. Normally, getting business loans for real estate is a non-option *unless* it is to be used as a business asset for buy and hold purposes. Flipping houses in the current down market is not going to get too hits with bankers.
What was your business in 93 - 05? That should be a welcome scenario with banks through SBA programs.
I recently got a DUNS number. I’ve only found two places to apply-everyone else want me to guarantee with my personal ss#. (I did read your article and will try quill and nebs) I have excellant credit, I have real estate that I could leverage, but I’m trying to have the business stand on its own two feet. Are there any loans you can suggest or other tactics. All these companies are calling saying they’ll build my credit if I give them $ up front. I’m not doing that. Thanks in advance for any help.
Hi Carol,
I don’t have my DUNS yet but have had a profitable business for over two years. Due to personal situations, my personal credit score dropped drastically. We became aqucated with Rising Point solutions through a friend. They help to clean up your credit. They do charge but they did so well, that my credit score is better than before I had my personal problem. I don’t usually share or post personally information, but they did such a good, (and continue to) that I think it would be a sin not to try and help others that need help. There web site is www.risingpointsolutions.com. Ask for Carl and tell him I sent you. (Also I don’t get any referral fee or any money for saying this.
Your article “First steps toward creating business credit” sure is a contradiction to your seminar promotion page where you say how easy it is to obtain business credit …to anyone with a pulse?
So which is it….hard or easy?
Is it really that difficult? I’m surprised by this answer. You surely cannot be comparing an 8 hour seminar where we give away our entire business model, to a general post for entrepreneurs on how to get started with credit. There are solutions for those that have bad credit, of course and do not qualify under traditional guidelines. That’s *part* of what we teach in the seminar. But it is a system…and it does take time and patience. And yes, anyone can create business credit if they know what banks look at, how they work, and what they approve.
I have my dunns number and tax id however, I find it very difficult to build business credit with vendors or credit card companies because they all want a personal guarnantee even if the company is incorporated can you offer a vendor that does not require this? I want to establish credit in my business name only and I don’t want to bring down my personal credit score with using my information to get credit cards and vendor credit.