Business

Business Credit

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    • Personalized Credit Analysis: Get a detailed report on your current credit status and actionable steps to improve it.
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    • Free DIY Credit Repair: Access resources and tools to repair your credit on your own, at no cost.
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    Understanding the importance of business credit

    Maintaining positive cash flow is one of the biggest challenges of running a small business. When the flow dwindles to a trickle, you might need to borrow to cover the gap. Taking out loans could also be necessary if you need capital to fund an expansion project.

    Good business credit can make it easier to qualify for loans and lines of credit while enjoying favorable interest rates. If you’re new to building business credit, it’s important to understand how it works and what you can do to achieve a good credit rating.

    • Business credit is separate from personal credit and measures your business’s ability to meet its payment obligations.
    • Dun & Bradstreet, Equifax, and Experian are some of the main entities that are responsible for generating business credit reports and scores.
    • Lenders can use the “five Cs of credit” to measure a business’s creditworthiness, in addition to reviewing business credit reports and scores.
    • Paying on time and maintaining low credit utilization are two of the best ways to improve business credit.

      Importance of Business Credit

      Business credit serves a similar function to personal credit, in that it can help you to qualify for loans or lines of credit when you need to borrow. Having a good business credit history can also make it easier to get approved for credit lines through your vendors and suppliers.

      Being able to access credit and financing as a business owner can play a part in your overall success. For instance, if a customer doesn’t pay their invoice on time and you need cash to cover payroll for your employees, you could leverage your good credit rating to access a short-term loan. Likewise, being able to purchase supplies or obtain vendor services on credit can make it easier to manage your business cash flow.

      Good business credit can also save you money when you borrow. The better your credit rating is, the more likely you are to qualify for the lowest interest rates on loans and vendor financing.

    How to Check and Monitor Business Credit Scores

    If you would like to check your business credit profile and credit scores, you have a few options. It’s important to keep in mind that each of these companies may collect and organize information about business credit in different ways.

    Dun & Bradstreet

    Dun & Bradstreet (D&B) offers free access to credit reports and scores to businesses that have a credit file. To build a credit file with Dun & Bradstreet, you’ll first need a data universal numbering system (DUNS) number. This is a nine-digit number that’s used to identify your business. You can apply for a DUN'S number for free through the D&B website.2

    Once you’ve done that, you can access your D&B PAYDEX score through CreditSignal. You’ll also get free credit monitoring when you sign up. PAYDEX scores range from 1 to 100 and specifically focus on past payment history. A higher score indicates that your business is more likely to pay its bills on time.

    Equifax Business

    Equifax furnishes business credit reports for businesses in a variety of industries, including financial services, healthcare, manufacturing, and retail. The Equifax Business Credit Report is designed to help you spot current and future credit risks that could impact your business.4

    A monthly free credit score is available through Equifax Core Credit. You can also view your updated Equifax Business Credit Report. You’ll need to complete the contact form on the Equifax website for more information.

    Experian Business

    Experian offers instant online access to small business credit reports. You can check business credit for your company or another company by entering the company name and address.5

    If you’d like to check your credit regularly, you could also consider enrolling in Experian Business Credit Advantage.

    Steps to Establish Business Credit

    If you’re ready to establish business credit, it helps to know where to start. You can follow these steps to create a business profile.

    1. Register the Business and Obtain an EIN

    Registering your business with the proper authorities makes it legal on paper. Whether you’re required to formally register can depend on your business structure and the laws that apply in your state.

    You may also need to apply for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS). The IRS uses this number to identify your business for tax purposes. You can apply for an EIN on the IRS website.7

    2. Open a Business Bank Account

    A business bank account is not necessarily a prerequisite for establishing business credit, but it’s good to have for a few reasons. Having a separate bank account for your business adds legitimacy to your venture. It also makes it easier to keep business expenses separate, which can be helpful at tax time.

    You may need to provide your EIN to open a business bank account. It’s also helpful to check minimum opening deposit requirements, as well as fees and other account features, when deciding where to bank.

    3. Establish a DUNS Number

    As mentioned above, you’ll need a DUN'S number to build a business credit profile with Dun & Bradstreet. You can request this number online for free.2

    You don’t need to request any special identification number from Equifax or Experian. The credit bureaus can begin building your business credit profile once companies that you borrow money from report your account activity.

    4. Consider a Business Credit Card

    Business credit cards are designed to make it easier to purchase the things you need to keep your business going. You can typically get approved for a business credit card based on your personal credit scores, and you don’t need to have any business revenue to qualify.

    As you compare business credit cards, remember to consider:

    • Rewards, if the card has a rewards program
    • Fees, including the annual fee and foreign transaction fees
    • Annual percentage rate (APR) for purchases and balance transfers

    Your initial credit limit may be low, but you could increase it by making on-time payments and paying your card in full each month.

    5. Establish Vendor Credit

    If you’re new to building business credit, then getting a small business loan might be out of the question for the moment. However, you may be able to get approved for credit lines through your vendors or suppliers.

    Also referred to as trade credit, vendor credit lets you buy the things you need from your suppliers and pay for them at a later date. If your vendors report to Dun & Bradstreet or one of the credit bureaus, your account history can help you to build business credit.

    Strategies to Improve Creditworthiness

    Creditworthiness is a measure of your reliability when it comes to repaying debts that you take out, either personally or for your business. When discussing what that means for small businesses, it’s important to cover the “five Cs of credit.”

    The five Cs of credit refer to five criteria that lenders can use to measure creditworthiness. They are as follows:

    • Capacity: Capacity refers to your business’s ability to take on debt and repay it, based on your current and expected future cash flow.
    • Capital: Lenders also measure creditworthiness in terms of capital, meaning how much skin you have in the game when it comes to financing your business.
    • Collateral: Collateral is any asset that you’re able to pledge as security for a business loan. That can include inventory, equipment, or real estate.
    • Conditions: When lenders reference “conditions,” they’re talking about the overall state of the economy, and how your business is expected to fare financially.
    • Character: Character reflects who you are as a business owner and a person. It can include things like any professional certifications you hold, your past experience with running a business, and your overall reputation in the local community.How you improve creditworthiness can depend on which of the five Cs needs the most attention. For example, you might take steps to cut expenses and improve cash flow if your capacity doesn’t look that great on paper. This could convince a lender that your business has the ability to repay any debts it might take on.

    Tips for Maintaining a Good Credit Profile

    Maintaining good business credit isn’t that different from maintaining good personal credit—both hinge on using credit responsibly. As you build business credit, these tips can help you to maintain your credit score:

    • Avoid taking on excessive amounts of debt that you can’t afford to repay from cash flow.
    • Keep credit utilization on business credit cards low, ideally below 30%.9
    • Pay bills on time, including payments on debt and payments to your suppliers or vendors.
    • Monitor your business credit regularly to look for any changes to your credit file that might negatively impact your score.

    Establishing business credit can take time, and it’s important to be consistent when practicing good financial habits. If you’re working on improving your credit score to obtain a business loan, remember that there are other factors that a lender can consider as well. Your time in business, annual revenues, and the industry that you’re in May all influence your ability to get financing.

     

    What Is the Fastest Way to Build Business Credit?

    Opening a business credit card is one of the fastest ways to build business credit, as you don’t need a business credit history to apply. Credit card companies can use your personal credit reports and scores to approve you, even if your business has yet to generate any revenue. Making on-time payments and keeping your credit utilization low can help you to build good business credit with a business credit card.

     

    Can I Use My EIN to Get a Loan?

    Lenders can accept an Employer Identification Number, or EIN, on an application for a small business loan. Whether a specific lender will use your EIN or Social Security number to check your credit can depend on its lending policies. Keep in mind that some business owners, such as sole proprietors, may not need an EIN. In that case, you’d apply for loans using your Social Security number instead.

     

    What Is Your Business Credit Score When You First Start?

    If you’re brand-new to building business credit, you might be starting with a score of zero. Your starting score can depend on the credit-scoring model that you’re using to track your progress. Dun & Bradstreet PAYDEX scores, for instance, range from 1 to 100, with 1 being the lowest score that you can have.

     

     

    Tradelines

    A trade line is a record of activity for any type of credit extended to a borrower and reported to a credit reporting agency. A trade line is established on a borrower’s credit report when a borrower is approved for credit. The trade line records all of the activity associated with an account.

    Comprehensively, trade lines are used by credit reporting agencies to calculate a borrower’s credit score. Different credit reporting agencies give differing weights to the activities of trade lines when establishing a credit score for borrowers.

    • A trade line is created on a borrower’s credit report to keep track of all the activity on the account.
    • A trade line is created for every line of credit or account a debtor has such as a mortgage, car loan, student loan, credit card, or personal loan.
    • Trade lines include information on the creditor, the lender, and the type of credit given.
    • A closed credit account will generally remain on a trade line for seven to 10 years.
    • A trade line includes all relevant information used to determine your credit score. It is important to review your trade line to ensure all information is valid and free from error.

    How a Trade Line Works

    A trade line is an important record-keeping mechanism that tracks the activity of borrowers on their credit reports. Each credit account has its own trade line. Borrowers will have multiple trade lines on their credit report, each representing the individual borrowing accounts for which they have been approved.

    The basic types of accounts that have a trade line are those paid off in fixed installments, and these accounts are often broken into categories. First, revolving trade lines are reported on credit cards or other lines of credit. Second, installment trade lines report the history of car loans, mortgages, student loans, and personal loans. Open accounts, a third type of account on a trade line, are often associated with businesses as opposed to individuals.

    Records Included in a Trade Line

    Trade lines may contain a variety of different data points related to the creditor, the lender, and the type of credit that is being provided. The trade line often contains the name of the creditor or lender, the account or another identifier for the type of credit being provided, the parties responsible for paying the loan, and the payment status of the account.

    The trade line will also contain particular account milestones, such as the date the credit was extended, the credit limit, the payment history, all levels of delinquency if any missed payments have occurred, and the total amount owed as of the last report. If a consumer closes an account, that account will typically remain on his or her credit report as a trade line for seven years, though in some cases the account can go away sooner.

    Payment status indicates whether or not payments for the loan are being made on time and how late they are if they are not being made on time. If the payments are being made on time, the payment status will indicate that the payments are being made according to the terms of the credit agreement.

    Special Considerations

    Late payments are usually grouped in a range of days according to how late they are. For example, delinquencies may be reported as 30 days late, 60 days late, or 90 days late. The payment status may be set to “charge off” if the creditor deems it unlikely that the debt will be repaid, and the status may also indicate that the credit recipient has entered bankruptcy.

    As trade lines are used by credit reporting agencies to develop an individual’s credit score, credit scores vary, with higher scores generally given to individuals with more-favorable trade line reporting. Factors considered when calculating the credit score include the number of trade lines, types of trade lines, lengths of open accounts, and payment history.

    In addition to reviewing a borrower’s credit score, a lender who pulls data from a credit-reporting agency may also comprehensively analyze all of the trade line reporting on a credit report when considering a credit application in the underwriting process.

    FICO Credit Score

    When applying for credit, your lender will often request your credit score as part of the approval process. Your FICO score is directly determined from the information listed on each trade line. Below is how your FICO score is calculated and how each section relates to trade lines.

    • Payment History (35%): Trade lines include debt or lines of credit that have been closed for up to 10 years.
    • Amounts Owed (30%): Trade lines are created for every line of credit. Each line of credit, revolving line, or installment agreement has its own trade line.
    • Length of Credit History (15%): Trade lines include every payment you've ever made against every account or line. This also includes every installment payment you've missed.
    • New Credit (10%): Trade lines are generally created within a month of the first payment being made on the associated line or account.
    • Credit Mix (10%): Trade lines are created for a variety of types of accounts including mortgages, car loans, credit cards, student loans, and personal loans.1

     

     

    What Is a Trade Line?

    A trade line is a summary on every revolving or installment credit you have. This detailed report outlines your creditworthiness by communicating to creditors and lenders your payment history, your credit history, and your delinquencies.

     

     

    What Is an Example of a Trade Line?

    A trade line is created for every credit line you own. An example of a trade line is your car payment history. When you begin repaying a car loan, a trade line is created that summarizes your contact information, your current payment status, the date the line of credit was opened, and the date the line was closed.

    The trade line will also report current information such as the date of your last payment, the current balance remaining, and your monthly payment amount.

     

     

    Can Trade Lines Hurt Your Credit?

    Yes, trade lines communicate to lenders your prior creditworthiness and details how much debt you have, what your current minimum monthly payments are, and what your historical payment delinquencies are.

     

     

    How Do You Get a Trade Line?

    A trade line is automatically created for you when a new line of credit is started. For example, when you sign up for a new credit card, a new trade line is created specific to that individual line of credit. As you incur purchases on the card and pay off debt balances, a record of history is created.

     

     

    How Long Do Trade Lines Last?

    Trade lines may show up on your credit report as soon as 15 days after the time of purchase. Alternatively, a trade line may be delayed on showing on your report up to 45 days depending on the timing of the purchase.

    Each credit reporting agency may have varying terms on how long a trade line is maintained. In general, a trade line is often maintained on your account 10 years after the trade line has been closed. Trade lines with a negative history are generally closed between seven to 10 years.

    Trade lines for fraudulent or erroneous reports can be disputed. After credit bureau agencies receive valid proof, these trade lines are often removed within 30 days of review.

    Business Consulting

    Here are the bulletins highlighting the importance of business consulting for your company:

    Why Business Consulting is Important

    • Expertise and Knowledge: Business consultants bring specialized knowledge and experience in various fields such as management, finance, marketing, and IT. This expertise can help businesses navigate complex challenges and make informed decisions.
    • Problem Identification and Solutions: Consultants have a keen eye for identifying problems that may not be apparent to internal teams. They offer objective insights and practical solutions to address these issues.
    • Strategic Planning: Consultants assist in developing and implementing effective strategies to achieve business goals. They help in setting realistic targets and creating actionable plans to reach them.
    • Cost and Time Efficiency: Hiring a consultant can be more cost-effective than employing full-time staff for specific projects. Consultants can quickly address issues and implement solutions, saving time and resources.
    • Market Insights: With their extensive knowledge of market dynamics, consultants can provide valuable insights into industry trends and competitive landscapes. This helps businesses stay ahead of the curve and adapt to changing market conditions.
    • Improved Performance: By optimizing processes and improving efficiencies, consultants help businesses enhance their overall performance and productivity.
    • Objective Perspective: Consultants offer an unbiased perspective, free from internal politics and biases. This objectivity can lead to more effective decision-making and problem-solving.
    • Hiring a business consultant is crucial for any company aiming to thrive in today’s competitive market. Business consultants bring a wealth of expertise and an objective perspective that can help identify and solve complex challenges. They offer tailored solutions to improve efficiency, streamline operations, and drive growth. By leveraging their specialized knowledge, businesses can implement effective strategies, optimize resources, and achieve their goals faster and more cost-effectively. In essence, a business consultant acts as a catalyst for innovation and success, ensuring your company stays ahead of the curve and maximizes its potential.
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