3 Big Reasons People Fail at Building Business Credit

Business

There are three main reasons why many people fail to build 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 critical. Before applying for business credit, a business must ensure that it meets or exceeds all of the lender’s credibility standards. There are more than 20 points of credibility that are necessary for a company to have a solid and credible foundation.

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

Whether you have employees or not, your business entity must have a federal tax identification number (EIN) to start 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 agencies, banks, and business credit providers have your business listed under the same tax identification number.

Your business address must be an actual physical building, a deliverable physical address. It can’t be a home address, it can’t be a PO Box, and it can’t be a UPS address. Some lenders will not approve or finance unless this criteria is met. There are business address solutions available from companies like Regus, which include the address only where you receive mail and packages at your dedicated business address.

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

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

A home or cell phone number as your primary business line could get you “flagged” as an unestablished business that is 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 mobile or landline number.

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

It is important to obtain a company email address 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 easy and cheap to neglect.

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

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

Business credit uses your EIN to qualify for credit. When you have enough credit 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 credit EIN is strong enough. If your EIN credit is not good enough, they may turn you down and then ask for your SSN. Regardless of what ANY credit representative tells you, credit CAN be obtained based solely on your EIN.

The third BIG reason people fail to build 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 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 initial cards in the business world are commonly called “vendor credit.”

A supplier line of credit is when a company (supplier) extends a line of credit to your company in terms of net “15, 30, 60 or 90” days. This means you can buy your products or services up to a maximum dollar amount and you have 15, 30, 60 or 90 days to pay the bill in full. So, if you’re set up in Net 30 terms and would 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 those for 30 days, making cash flow easier. And some vendors will approve your company for Net 30 payment terms by verifying as little as an EIN number and a 411 listing. When your first Net 30 account reports your “business line” to Dun & Bradstreet, the DUNS system will automatically activate your file if you haven’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 providers require an initial prepaid order before they can approve the terms of your business. Vendor accounts are hard to find, so keep in mind that your vendors do not necessarily have to meet 100% of your business needs.

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

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