Why Build Business Credit? To Get a Small Business Loan (of course) We believe the absolute #1 reason why any business builds business credit is for one simple reason and one reason only. To secure money for their business. Whether that’s working capital, a merchant cash advance, line of credit, or SBA loans. There are three major reasons why businesses build business credit. #1. When you compare business credit capacity versus the capacity of individual personal credit a business can have ten to one hundred times more capacity. This is a major difference between business and personal credit. #2. Separate credit for you as an individual and separate business corporate credit. The idea is to have credit for your business that is not impacting or interfering with your personal credit profile. Since your business has a Federal Tax ID or EIN (Employer Identification Number, which is the business equivalent of your social security number), it enables you to keep your personal credit history, personal assets, and liabilities separate from your business credit history and its business assets and liabilities. The result is to keep your personal credit separate from your business credit profile and makes it very challenging for anyone to pierce the corporate veil in the event of a lawsuit. #3. Business credit enables you to grow your business. Big time! Every lender sees a creditworthy business as a business that positions itself to be appealing to potential investors, buyers or lenders. The idea for any business that looks to grow and expand, buy inventory, advertising, payroll or buy equipment is to make it easy for any lender to say, “YES.” Whether it’s the traditional lenders like banks and credit unions, or the best alternative lenders for small businesses. Then your business needs to stand on its own for financing. The bottom line is that you won’t be able to do that until it you have built strong business credit scores with Experian, Equifax, and Dun & Bradstreet. (A word of caution here: D&B will try to sell you on their business credit-building program. Trust me, what I’m giving you is everything you need to do it yourself and you’ll save yourself 1,000’s of dollars). According to Wells Fargo Bank Separating Personal and Business Finances “The longer you delay establishing business credit, the longer you delay taking advantage of business loans.” Now there are 6 Steps to building business credit. I’m going to be giving you a high-level overview with the step-by-step details. I’m going to have to warn you; don’t take a scattershot approach to this. It’s like a recipe for your favorite cake. There are ingredients that must be mixed in a precise order and baked at a specific temperature for a certain amount of time. Skip a step and it’s like leaving out the sugar. Trying to get it done too quickly is like baking it at 500 degrees for 15 minutes instead of 325 degrees for 45 minutes. Get the point? Let’s jump in. Steps 1 and 2 are the basic building blocks, the foundation, and they are critical to complete. This preps your business so that your business is ready to build strong business credit scores. I’m telling you in no uncertain terms that skipping and not completing Steps 1 and 2 and it is impossible to build business credit scores that are totally separate from you personally (your personal credit score otherwise known as FICO). Steps 3, 4, 5 & 6 are where you build business credit. Exciting, right? So, here’s the bigger picture. First, you’ll set your business up with all 3 business credit agencies; Equifax, Experian, and Dun & Bradstreet. (The personal credit bureaus are Trans Union, Equifax, and Experian). Next, you’re going to obtain five vendor lines of credit that report to those 3 agencies. You’ll then get 3 business credit cards that also report to those agencies. And finally, I’ll show you how you can get your first business bank loan that reports to the business credit agencies. How cool is that? Below is a summary of each Step and what you must do to successfully build business credit… The first thing we are doing is setting the foundation for building business credit. It’s what puts you in a position to get that small business loan. If you are ready to launch your business, then it’s even more imperative that you follow this closely. In the end, it will save you a tremendous amount of time. Naturally, you must make sure your business is ready to build business credit. So how do you do that? To start we are going to cover the foundational issues. Let’s begin with the name of your business. Even if you are already incorporated or have been in business for a while, you need to check to see if your business name conflicts with other established businesses or if it could potentially cause Trademark infringement. Dun and Bradstreet – Credit Name Search Check to see if any businesses with the same or very similar names are listed with Dun and Bradstreet (D&B). To use D&B’s Find a Company Search Click Here. Be sure you select “Nationwide” on the “Select a State” drop-down. Your business name should not already be listed with D&B and needs to be unique. The reason for that is you do not want your business always having to explain “why it is not that other business with the same name”. Knowx.com – National Name Search Check to make sure that your business name does not conflict with other businesses nationwide. To do that you can use Knowx. They charge $65 for a national search but it is well worth it. If you would rather not pay the $65 you can run a business name search yourself on each Secretary of State’s website. Use social media, and check the available public records to make sure there are no conflicts. Trademark – Infringement Name Search Check with the U.S. Trademark office to make sure that your business name will not cause Trademark infringement. To do that for free please Click Here, then click on Search under “Get a Trademark Registration…” From there, select New User Form Search to submit a query. You want to find that your business name is free and clear. Doing this search on your own is a little complicated, please be sure to read all the Trademark Office instructions. Web Site Address – Domain Name Search (.com) You need to verify that the domain URL (website address) for your business name is not currently being used. Go to any domain registrar to check (Like Godaddy.com). You should purchase your business name URL (domain name) if it is available as a “.com”. For example, if your business legal name is “The Bike Stop”, then “www.TheBikeStop.com” needs to be available and you should secure it. Web Listing – Online Directory Search Finally, you need to search the online directories to see if your business is listed correctly or even listed at all. If your business shows up, make sure all the information is correct. If it does not show- up, then be sure to create a free business listing with the Manta directory. Now let’s move on to Step 2 Your Business Fund-ability Your bank accounts are a vital business credit-building component The big question is, “ how fund-able is your business?” This includes several components that determine how your overall business is seen by lenders, investors, insurers, suppliers, and more. Basically, we know that your business was worth the risk for you, but is it worth the risk for them? The answer will increasingly be “yes” as your business credit grows. So by improving the fund-ability of your business is doing more than just helping you build strong business credit ratings. The idea is to improve the overall “health” of your business while greatly increasing your ability to succeed both now and long term. So what makes up this fund-ability. These are the major components of your Business including your Business Bank Accounts, Business Assets, and Business Revenue. Bank Accounts I can’t tell you how many times we see this challenge at Sunwise Capital when we look to fund what appears to be a great business. Know that it is vital that the way your business name is listed on your business bank account(s) matches exactly with how your business name appears on your legal paperwork that has been filed with the State. It must also match exactly with the business name that appears on your Federal EIN paperwork. To reiterate, your business savings account name and business checking account name must be identical. IF IT DOES NOT MATCH, GET IT CORRECTED IMMEDIATELY! I promise you this stops the lending process COLD. On top of that, all lenders determine the age of your business by the date you first opened your business bank account. The date that appears on your Incorporation as a Limited Liability Company (LLC) or EIN paperwork really doesn’t matter to lenders or to the business credit agencies. REMEMBER. The business entity matters. Sole proprietorships are based on your social security number and do not have a federal tax id. What that means to you is that you are not able to separate your business credit and history from your personal credit. Everything in business lending and business credit starts from the day you open your business bank account. Your business banking history, credit history, and business structure is vital to your future success of being able to secure business loans. Lenders will look to see how long that relationship has been established, so once you get your account established and/or corrected, do not make any changes. DO NOT MOVE BANKS. Don’t take this too lightly. Again, it’s a big mistake to move your business checking account or business savings account. (Opening another concurrent bank account is fine and builds its history). The longer your business banking history, the better it is for your business borrowing potential. Do yourself a favor and if you haven’t already done so, take the time to verify that the business names listed on your State, Federal, and Banking paperwork all match 100% and all have your business listed at the exact same mailing address. These are some of the things we look consider at Sunwise Capital when we look at your business loan application. You may need to provide a certificate of good standing when applying or after being approved for a business loan. Step 3 requires you to get your business credit files open with all three business credit reporting agencies … Dun & Bradstreet, Experian, and Equifax. Most vendors who extend lines of credit use Dun & Bradstreet and report to them regularly. Landlords use them to approve office leases as well. Many credit card companies and non-traditional business lenders use Experian. Equifax is called the “Small Business Financial Exchange” and is most important for cash lenders such as banks. A note of caution: There are some confusing claims made by the business credit reporting agencies. For instance, Dun & Bradstreet claims that you must pay them or your business file will never be opened. That is simply not true. Your file will activate with them, it just will take a few reporting cycles. Equifax claims that they don’t allow business owners to purchase a copy of their reports. That is true, but later I will show you how to obtain a copy of your Equifax business report without purchasing it. Credit monitoring is a good idea from time to time. Look there is a lot of confusion about the Business Credit Reporting Agencies and business credit monitoring. I’m hopefully going to be able to give you a much clearer understanding of the business credit reporting process and hopefully give you insights into how your business credit scores are developed when you’re finished. Remember, the end game is securing that business loan. Vendor Credit (Net 30) A vendor line of credit is when a company (vendor) extends a line of credit to your business on “Net 30, 60, or 90” day terms. This means you can purchase their products or services up to a maximum dollar amount and you have 30, 60, or 90 days to pay the bill in full. So if you purchase $300 worth of goods today, then that $300 is due within the next 30 days. The facts about vendor credit lines: You can get products and services your business needs and defer the payment on those for 30 days, thereby easing cash flow. This is called “Net 30”. When your first Net 30 account reports your “tradeline” to Dun & Bradstreet, the DUNS system will automatically activate your file and your number if it isn’t already. There are many vendors that will open a Net 30 terms account for your company with as little as an EIN number and a verified 411 listing. I’ll be certain to share those with you as we go. There should be enough vendors to choose from so that if one or two of them insist on requiring an active credit file first, you’ll be able to move on to another. Do me a favor and always apply first without using your SSN. You know some vendors will request it and some will even tell you flat out on the phone they must have it. STOP! Submit first without it, with your EIN only. Some vendors may even ask you to place an initial prepaid order. If so, get that order out of the way fast and move on to having a Net 30 account opened. Remember that the goal here is to have at least five (5) Net 30 accounts opened and reporting, not necessarily to have vendors that serve 100% of your business needs right now. Later, once your scores are built, you can add better vendors, as you may need them. Remember 5 (five) is THE magic number (not 3, not 4 but 5!) Pay your vendor accounts as close to Net 15 days as possible. The quicker you pay them the better your business credit scores will be. However, you must be patient and allow time for the vendors’ reporting cycles to get into the system and begin impacting your business credit scores. It typically takes three (3) cycles of “Net” accounts reporting to build credit scores. Remember that I said from the very beginning that it takes 90 to 120 days to build business credit scores. The credit reporting cycles are the main reason for that and it cannot be done faster. Sorry. (That’s why most business lenders like Sunwise Capital www.sunwisecapital.com needs to see you in business for at least 6 months) Revolving Credit Accounts Now here’s where it gets really exciting. Having three (3) Revolving Business Credit Card accounts is key to building business credit (and makes it so much easier to get working capital). For your business credit building success, you need to obtain three (3) revolving business credit card accounts. These accounts report to the business credit agencies in different ways and carry more weight than the vendor credit that you select in Step 4. A revolving credit account is simply one that allows you to pay a “minimum due” per month and not the full outstanding balance. These accounts normally report to Experian and sometimes to D&B and Equifax. Because of how they report, these accounts will help build your business credit on a larger scale than just the Net 30-day vendors alone If you haven’t completed Steps 1 through 4, There is no point in starting Step 5. Why? Because you will most likely get declined. These accounts will be checking to see that your business credit foundation is set and that your business credit files are open. They may also check your bank rating, look to see if you have some open vendor lines of credit and, in many cases, they will want to see that your D&B file is open. Just remember that in this step it does not matter which Revolving Credit Card Accounts you open and make purchases with. There is a great selection of companies offering products and services that are of value to all businesses. NOTE: Make sure you are paying your bills on time or early. It impacts your score. Before I move on can I share a funny story with you? First, you must understand that a true business credit card is a credit card that only has your business name. Most “business credit cards” are not truly just in the business name. How can you tell the difference? Well if your name is on the credit card this tells the world that you are personally guaranteeing the card’s debts. Anyway, back to the story. So, I flew into Los Angeles on a business trip and I went to the car rental counter to pay for my vehicle. When I handed them my credit card I knew I was in real trouble. You see the name on the AMEX was “Credit Wise Advisors.” They look at me and look at the card and I knew what was next. “You’re not Credit Wise”. My challenge? How do I prove to them that I’m Credit Wise? After a 10-minute discussion and one manager later I come up with a brilliant idea. Let’s call AMEX. Two minutes later I’m driving away. So, stealing the line from a too often played commercial, “What’s in your wallet?” Bank Credit Now for the Grand POOBAH. How to get a real street creed from your bank. Getting “Bank Credit” makes your business more credible in the eyes of almost all other lenders. Makes sense, right? I will walk through what must be done to obtain Bank Credit that will start the reporting process for your business and place your business on all other lender’s radar. Imagine banks reaching out to you asking if you’re business needs working capital or a small business loan for growth and expansion. Imagine being a small business and being able to play with the big boys. Here’s the deal; I will teach you about how a strong business bank account rating indicates your business can repay loans, and I will show you how banks rate your accounts. You know that Sunwise Capital has small business loan funding programs that can bring quick cash to your business. But I can also show you some creative programs for accessing personal cash that can then be used in your business. Here’s the bottom line. I will detail why your business needs a bank loan that reports to the business credit agencies, exactly how to go about obtaining it and which banks to go to. Fair enough? I’ll provide you with a detailed list of banks that other small businesses use successfully to get one bank loan and that I have verified reports to the business credit agencies. Many banks that offer business credit cards and business loans either do not report to the business credit agencies or worse they only report on your personal credit. Not fair, not fair at all. I’m going to save you hundreds of hours of researching on your own and I will make sure that you get it done the fastest possible way! Stay tuned and let me know your success.