As we discuss in class, Entrepreneurship for Transitioning Warriors, business cash and business credit are two of the critical items that a military veteran must understand. Funding your business can be a complex challenge for military veterans. Here is an excellent article by Michelle Black the Founder of CreditWriter.com and HerCreditMatters.com. Michelle lays out key items in establishing business credit in five basic steps.
Michalle writes--Building credit for your company is a wise use of your time as a business owner. There’s a lot of value in establishing good credit for your business.
Having solid business credit can help you to qualify for a business loan or credit card. It can make it easier to take out leases and commercial rentals. Good business credit might even help you save money on your monthly insurance premiums and contracts with suppliers. Perhaps most importantly, building credit in your business’ name can help you to separate your personal credit from your business credit, reducing your individual risk when you borrow.
The bottom line is this: when you put forth the effort to build credit for your company, it has the potential to open doors and save you money.
Building Business Credit from Scratch
Of course, knowing that you should establish good credit for your business and understanding how to do it are two very different animals. Unfortunately, it can sometimes be challenging to find lenders who are willing to take a chance on doing business with your company when you’re still a credit unknown.
But challenging doesn’t equal impossible.
If you can be patient and consistent, it’s completely possible to establish or improve your business’ credit profile. Check out the five steps below and learn real, actionable ways you can build your business’ credit from scratch.
Step One: Make sure your business is properly established.
Before you can establish business credit, you need to make sure your company itself is properly established first. Translation: Your business needs to appear legitimate in the eyes of a lender.
To establish credibility for your company, you’ll need to:
Create a separate legal entity for your company (S Corp, C Corp, LLC, etc.).
Get a federal employer identification number (EIN) from the IRS.
Open a business checking account in your company’s full legal name.
Get a dedicated business phone number and address.
Register for your DUNS Number with Dun & Bradstreet.
Step Two: Consider starting with a business credit card.
There are several reasons you may want to open a credit card in your business’ name. First and foremost, if you open a business credit card and manage it well, it has the potential to help you build credit for your company.
Keep in mind, your personal credit is likely going to be a key factor in your ability to qualify for a business credit card account. If your personal credit isn’t in great shape, that doesn’t mean you can’t open a credit card for your company. It just means that you may need to adjust where you apply for the account. For example, a secured business credit card or an account which doesn’t require good credit to qualify might be a better fit for you.
Additionally, it’s important not to over-utilize your new account. With certain business credit scoring models, such as Experian’s Intelliscore Plus, utilizing a high percentage of your credit limit could impact your credit scores negatively. This can be true even if you keep all of your payments on time.
Step Three: Establish vendor accounts.
Vendor accounts (also known as supplier accounts) can be another smart place to begin when you’re trying to build business credit for the first time. The Small Business Administration recommends this approach and suggests starting out with companies who will offer net 30 to net 60 day payment terms for products like office supplies, computers, etc.
Here’s the catch. You should establish accounts with companies who will report your payments to the business credit reporting agencies — Dun & Bradstreet, Experian, and Equifax. Otherwise, the payments you’re making to that vendor won’t help you establish credit in your company’s name.