Business

Three Big Reasons People Fail to Build Business Credit

There are three main reasons why many people fail to create business credit. The first BIG reason people fail is that their business is not credibly set up in the eyes of the lender. The perception that lenders, suppliers and creditors have of your business is essential. Before applying for commercial credit, a business must ensure that it meets or exceeds all credibility standards of lenders. There are more than 20 points of credibility that are necessary for a company to have a solid and credible foundation.

To make sure you are credibly viewed, it is very important that you use your exact legal business name. Your full business name must include any registered DBA files that you intend to use. Make sure your business name is exactly the same on your business documents, licenses, and bank statements.

Whether you have employees or not, your business entity must have a Federal Tax Identification Number (EIN) to begin earning business credit. Just like you have a social security number, your business has an EIN. Your tax identification number is used to open your bank account and create your business credit profile. Take the time to verify that all commercial credit agencies, banks, and providers have your business listed with the same tax identification number.

Your business address must be a real brick and mortar building, a deliverable physical address. It cannot be a home address, it cannot be a PO Box, and it cannot be a UPS address. Some lenders will not approve or finance unless this criterion is met. There are business address solutions available from companies like Regus that include the address only where you receive mail and packages at your dedicated business address.

You must have a dedicated business phone number that is listed with 411 directory assistance, under your business name, to successfully obtain business credit. Lenders, vendors, creditors, and even insurance providers will verify that your business is on the 411 list. A toll-free number will give your business credibility, but you must have a LOCAL business number for the 411 list.

Lenders perceive the 800 number or toll-free numbers as a sign of business credibility. Even if you are a sole proprietor with a home business, a toll-free number gives you the perception that you are an even larger business. It’s incredibly easy and inexpensive to set up a virtual local phone number or a toll-free 800 number.

A cell or home phone number as your primary business line could get you “flagged” as an unestablished business posing too high a risk. DO NOT provide a personal cell phone or home phone as a business phone number. You can forward a virtual number to any cell phone or landline number.

Credit providers will research your business on the Internet. It’s best if they learned everything directly from your company’s website. Not having a business website will seriously hurt your chances of obtaining business credit. There are many places online that offer affordable business websites so that you can have an internet presence that displays an overview of your company’s services and contact information.

Obtaining a company email address is important for your business. Not only is it professional, but it greatly helps your chances of getting the go-ahead from a credit provider. Setting up a business email address is too cheap and easy to neglect.

The second big reason people fail to build business credit is that they apply for it using their social security number. Always apply first without using your social security number. Some providers will ask for it, and some will even tell you over the phone that they need to have it, but send it without first. Many don’t even know that they can get approved without it.

When you apply using your SSN, you are almost always giving a personal guarantee. An easy way to know if you already have business credit is if you obtained it without signing it and without providing your SSN. TRUE business credit does not require an SSN in most cases to qualify.

Business credit is using your EIN to qualify for the credit. When you have enough credit accumulated for your EIN, you can get approved without providing your SSN. If you provide an SSN, your personal credit WILL be withdrawn in most cases. That personal credit will be used for the approval decision.

Most credit issuers will approve you without your SSN if your EIN credit is strong enough. If your EIN credit is not good enough, they may reject you and then ask for your SSN. No matter what ANY credit representative tells you, credit CAN be earned based solely on your EIN.

The third BIG reason people fail to create business credit is that they apply for credit in the WRONG ORDER. A business credit report can be started in the same way as a common consumer report, with small credit cards. The business may be approved for small credit cards to help them build an initial credit profile. These types of starter cards in the business world are commonly called “provider credit.”

A supplier line of credit is when a company (supplier) extends a line of credit to its business in terms of “15, 30, 60 or 90 days net”. This means that you can purchase your products or services up to a maximum dollar amount and you have 15, 30, 60 or 90 days to pay the invoice in full. So if you are set up on Net 30 terms and you were to buy $ 300 worth of goods today, then that $ 300 is due within the next 30 days.

You can get products and services for your business needs and defer payment for 30 days, thus facilitating cash flow. And some vendors will approve your business for Net 30 payment terms after verification of just an EIN number and a 411 list. When your first Net 30 account reports your “business line” 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 must have a total of at least five (5) 30-day net pay account reports. Some vendors require a prepaid initial order before they can approve their business terms. Vendor accounts are hard to find, so keep in mind that your vendors don’t necessarily have to meet 100% of your business needs.

Avoid these three BIG mistakes to quickly build an exceptional business credit profile and score that you can use to build credit for your business.

Leave a Reply

Your email address will not be published. Required fields are marked *