Booklet Creditera

Small Business Credit 101: Give Yourself an Unfair Advantage

CONTENTS

.02 Introduction .03

Why Separate Personal From Business Credit?

.04

How Do I Build Business Credit?

.06

How Do I Leverage Business Credit?

.07

Conclusion

INTRODUCTION

Like your personal credit, your company also has its own separate business credit reports and scores. This information is used to judge the creditworthiness of your business. It can seriously impact your ability to access capital, supply chain connections and eligibility for government contracts – everything you need to build a successful business.

The three major business credit bureaus are Equifax, Experian and Dun and Bradstreet, and each uses a slightly different scoring method. Regardless of the method used, your business will have a good credit score if it pays its bills on time, stays out of legal trouble and doesn’t incur too much debt.

These bureaus all collect data on your company without your knowledge. But you can do certain simple things to ensure they’re receiving the best information and reflect your company in the best light. It starts by separating your personal from your business credit.

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WHY SEPARATE PERSONAL FROM BUSINESS CREDIT? While most people use personal funds to start a business, as soon as you are up and running you should shift away from personal credit to building and using credit just in the business name.

Personal credit plays a lesser role Over time — usually within three years — your business will be mainly judged by its business credit reports and financials, with your personal credit score playing less of a role.

Protect your personal credit

Access more credit

You can kill your scores if you rely on personal credit cards to fund your business operations. Maxing out your cards can cause your score to drop by 100 points.

A business will usually use 10 times more credit than a consumer. A business that applies for credit using the company profile, instead of a personal profile, can access 10 to 100 times more funds.

According to the SBA, insufficient financing is the second-leading cause of business failure.

.03

HOW DO I BUILD BUSINESS CREDIT?

720 Improve your personal credit score

Transfer expenses to the business

To build credit, you must obtain credit. Ensure your personal credit history is pristine. Most lenders will examine this information before extending business credit to your company.

Determine which expenses you have registered under your name, and switch them over to your company.

If you have not already done so, incorporate your business so it is a separate legal entity.

Check reports for errors Errors are more prevalent on business reports. 25% of small business owners who checked their reports found erroneous data that lowered their scores. Finding and disputing incorrect information is one of the quickest ways to build strong credit.

Open lines of credit Initially, it’s easiest to get a business credit card and establish trade credit with vendors and suppliers. Just verify that the creditors you do business with report your payment history – it’s sent in voluntarily.

Important! In order to create a business file for you, Dun & Bradstreet requires that you have at least 4 credit or trade partners reporting on your payment history.

.04

Use your business credit Once you’ve established lines of trade credit and business credit cards, put them to use.

This task shouldn’t be difficult, as your company will need to restock supplies, materials and inventory – a big reason why you want to get trade credit from your usual suppliers and vendors.

Pay your bills on time

Unlike personal credit, being just one day late on your bills will hurt your business scores.

Submit payments for your business’s credit accounts in advance of the due date if you can.

This has the biggest impact on boosting business credit scores. And unlike personal credit, being just one day late on you bills will hurt your business scores.

HOW DO I LEVERAGE BUSINESS CREDIT? Strong business credit helps you access capital, win new business, and reduce costs.

Use it to:

Obtain more favorable loan terms

Receive better insurance rates

A strong business credit score lets you qualify for business loans with better interest rates, such as SBA and traditional bank loans. This can save you thousands of dollars over the life of the loan.

Your business insurance company also reviews business credit scores to determine premiums, deductibles and other costs. As with loans, higher scores indicate less risk, so speak with your provider to determine if you can lower your premiums.

Negotiate better terms from vendors and suppliers Healthy business credit scores can give you more time to pay for goods and services your business uses. By showing your vendors and suppliers that you’re a safe bet, they may give you an extra 30, 60 or 90 days to pay (Net terms). This extra time helps smooth out cash flow.

Apply for government and enterprise contracts Bigger businesses and governments typically check business credit scores during the contract bidding process. A low score could automatically disqualify you for these lucrative contracts.

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CONCLUSION As a small business owner, it can feel like the scales are tilted against you. Building a separate business credit profile from your personal credit is one easy way to tilt them back in your favor.

You’ve got to stay on top of it, but the payoff is huge – confidently creating the business of your dreams.

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