Having access to money and credit for your business ultimately determines your business’ success or failure according to the SBA. But unfortunately, according to Enterprenuer.com 90% of business owners know nothing about business credit, and ironically about 90% of businesses in the United States that open end up failing and closing their doors for good. In most cases, business owners have to choose whether they want to have good personal credit or money to grow their business. They have no clue that you really don’t have to choose when you build your business’ credit.
How To Get A Business Loan Without Ruining Your Credit
Having a good business credit profile and score can be all of the difference between you having a highly prosperous business, or being at the helm of a sinking ship. You have to have money and credit to grow, especially to grow into a highly successful business. This is actually one commonality ALL successful business have… they all have established business credit. Facebook, Microsoft, Apple, and every highly successful private and public company does have business credit. This means the business can use its own credit profile to grow, without the owner or CEO providing their personal credit or liability to secure that credit. Walmart gets 80% of their total cash injection for business credit alone, one of the reasons they have grown into one of the largest retailers in the world.
But what about you? Do you have business credit established now? Are you able to go out right now and get high-limit store and cash credit cards for your business…without even having to provide your social security number on the application? If not, you need business credit; it actually might be the only thing holding you back from ultimate success.
But how do you get business credit? How do you become one of the exclusive and elite 10% of entrepreneurs who understands business credit and gets it for your company to help you grow? I wrote this post to help you get started. Soon you’ll be able to get a business loan without ruining your credit.
What Is Business Credit?
Business credit is credit that is obtained in the business’ name. With business credit the business builds its own credit profile and credit score. With an established credit profile and score, the business will then qualify for credit. This credit is in the business name and based on the business’ ability to pay, not the business owners. Since the business qualifies for the credit, in some cases there is no personal credit check required from the business owner.
There are a ton of benefits that business credit provides including a credit profile that can be built for a business that is completely separate from the business owner’s personal credit profile. This gives business owners DOUBLE the borrowing power as they have both Personal and Business credit profiles built.
Business credit scores are based only on whether the business pays its bills on time. A business owner can obtain credit much faster using their business credit profile versus their personal credit profile. Approval limits are much higher on business accounts versus personal accounts which is yet another benefit. Per SBA, credit limits on business cards are usually 10-100 times higher than consumer credit.
When done correctly Business Credit can be built without a personal credit check. Business credit can quickly be obtained regardless of personal credit quality. And business credit doesn’t report to the consumer credit reporting agencies and won’t show up on your personal credit report. So as you obtain new business credit and use it, your scores won’t dramatically decrease, as they will with consumer credit. You’ll be able to get a business loan without ruining your credit because most business credit can be obtained without the owner taking on personal liability or a personal guarantee.
This means in case of default, the business owner’s personal assets can’t be pursued. Even though most don’t know this, when a business owner applies for financing, their business credit IS reviewed. Not having business credit established will get an owner DECLINED for financing. There are no regulations that require the lenders notify the business owner for their reason for denial, so most never know. The business can use its credit to qualify for revolving store credit cards like Staples, Lowes, Sam’s Club, Costco, BP, Wal-Mart, even MasterCard, Visa, and AMEX. The business can also qualify for credit lines and loans.
Building Your Business Credit
It’s actually not hard to build business credit; you just need to know the proper steps to get started. Business credit building isn’t that much different than consumer credit. You start off with no credit established. You then get approved for new credit that reports to the BUSINESS credit reporting agencies helping you establish and initial credit profile and score. Once your profile and score are established, you can then use that profile to start getting more and more credit.
As you grow your credit you will get access to more useful credit such as store credit cards and cash accounts such as Visa and MasterCard credit you can use anywhere. Your credit limits will also grow, so you’ll have access to more and more credit as you continue to expand your credit profile. Let’s jump in a take a look at the actual business credit building steps.
Step 1- Building Your Business’ Credibility
The perception lenders, vendors, and creditors have of your business is critical to your ability to build strong business credit. Before applying for business credit a business must ensure it meets or exceeds all lender credibility standards. There are over 20 credibility points that are necessary for a business to have a strong, credible foundation. I created a quick reference guide that you can download here.
To begin it is very important that you use your exact business legal name. Your full business name should include any recorded DBA fling you will be using. Ensure your business name is exactly the same on your corporation papers, licenses, and bank statements. You can build business credit with almost any corporate entity type. If you truly want to separate business credit from personal credit your business must be a separate legal entity not a sole proprietor or partnership.
Unless you have a separate business entity (Corporation or LLC) you might be “doing business” but you are not truly “a business”. You need to be a Corporation or an LLC in order to separate personal from business.
Whether you have employees or not, your business entity must have a Federal Tax ID number (EIN). Just like you have a Social Security Number, your business has an EIN. Your Tax ID number is used to open your bank account and to build your business credit profile. Take the time to verify that all agencies, banks, and trade credit vendors have your business listed with the same Tax ID number.
Step 2- Obtain Your Business Credit Reports
Experian, Dun & Bradstreet, and Equifax offer business credit reports. You will first want to get a copy of your business credit reports to see what is being reported before you start your business credit building. You can get both your personal and business credit reports for free here.
Step 3- Apply and Get Vendor Credit
When you started building your consumer credit report you probably did so with small-limit credit cards, possibly even secure credit cards. A business credit report can be started much the same as a consumer report commonly is, with small credit cards, but in the business world these aren’t secure credit cards, they just have set repayment term versus being open-ended revolving accounts. Your business can be approved for small credit cards to help you build an initial credit profile.
These types of initial cards in the business world are commonly referred to as “vendor credit”. You must start a business credit profile and score with starter vendors. Starter vendors are ones who will give you initial credit even if you have no credit, no score, or no tradelines (or what’s known as payment experiences, now. Most stores like Staples will NOT give you initial starter credit so DON’T even try applying.
Most stores will NOT approve a business owner for business credit unless the owner has an established credit profile and score, just like in the consumer world. Vendor accounts must be used first to establish a profile and score, and then store credit can be obtained. It usually takes only 90 days or less to establish a score and profile with trade lines.
A vendor line of credit is when a company (vendor) extends a line of credit to your business on “Net 15, 30, 60 or 90” day terms. Always apply first without using your SSN. Some vendors will request it and some will even tell you on the phone they need to have it, but submit first without it. Most credit issuers will approve you without your SSN if your EIN credit is strong enough. If your EIN credit is not good enough, you might be declined and they then might ask for your SSN. No matter what ANY credit representative tells you, credit CAN be obtained based on your EIN only. When your first Net 30 account reports your “tradeline” to Dun & Bradstreet, the DUNS system will automatically activate your file if it isn’t already. This is also true for Experian and Equifax.
You need to have a total of at least five payment experiences of Net 30 day pay accounts reporting to be able to start getting revolving store credit cards. Some vendors require an initial prepaid order before they can approve your business for terms.
Step 4- Apply and Get Revolving Credit
After five payment experiences are established using vendor accounts, obtaining revolving accounts is the next step. Revolving accounts are cards a business owner can use and not be required to pay the full balance owed each month Vendor accounts must be used first to establish a profile and score, then store credit can be obtained. It usually takes only 90 days or less to establish a score and profile with trade lines.
Most major retail stores offer business credit accounts, although they don’t promote that they do. Major retailers including Walmart, Target, Best Buy, Amazon, Sam’s Club, Costco, Staples, Office Depot, Lowes, Home Depot, BP, Chevron, and most other retailers all offer business credit. And most of these retailers will approve you for new credit once you have a credit profile established, have a good business credit score that results from you paying your bills as agreed, and once you have five payment experiences or more established on your business credit profile.
Once 10 total payment experiences are on the credit, an owner can then start applying for Visa, MC, and American Express type credit. Approval amounts will be equivalent to the highest credit limit account on the business report. Try to have 10 payment experiences with at least one of them having a $10,000 high limit. It is essential to keep using the credit, keep applying for more, and talk with credit providers to raise credit limits. If you do this, business credit will keep growing until higher limit credit lines are obtained, within 6-12 months.
Building business credit is truly as easy as building consumer credit once you know the proper steps to take. Now you know the 4 essential steps to take to build business credit that’s linked to your EIN and not your SSN. You’ll soon be able to get a business loan without ruining your credit.
The next step is to take action on the first step and make sure your business is setup credibly. As you are doing this get your business credit report access established. Then you can start building your vendor credit to establish your credit profile and score so you can start securing revolving credit accounts.
Many people ask, “How long does it take to build business credit?” Keep in mind, just like with your consumer credit this is a never-ending process. You will always be growing your business credit as your business grows because you’ll have a need to access more and more credit as your business grows. If you pull a credit report for Walmart for example, you will find that their highest reported credit line has a limit of $50,000,000! You can be assured that they didn’t start out with those high of credit limits; they grew their credit to get those kinds of limits over the course of 40 years.
You may never need a credit line for $50,000,000. But as your company grows you will want more and more credit. For this reason, building your business credit is a never-ending process. You can start getting vendor credit right away. It will then take about 30-90 days for that new credit to report, and then you can start to get revolving store credit cards.
If you continue to grow your credit you will qualify for cash credit in only 4-6 months of starting the business credit building process. Get started today securing your first vendor accounts. This will get you a business credit profile and score you can then use to get your hand on real useable store credit, leading to you accessing cash credit to help your business grow. To stay on track download my free business funding guide here.
Good luck on building your business credit! If you have any questions or would like to join my upcoming Business Credit Building Boot Camp you can book a complimentary Discovery Call >>