Friday, July 08 2016
When establishing business credit, there are actually three types of credit you can get: vendor credit, starter accounts that offer Net 30 terms, store credit, revolving credit cards available in retail stores, and cash credit, revolving credit cards such as Visa and MasterCard that card issuers or banks approve you for.
The biggest mistake entrepreneurs make when building business credit is that they try to apply for store or cash credit first, and skip vendor credit.
But stores and banks will NOT approve a business owner for credit until their EIN credit profile and score are established. If you try to apply for store or cash credit without an established business credit profile and score, you’ll be denied… 100% of the time.
You must get approved with vendors first who offer Net 30 terms. Then after you use those accounts and pay your bills the accounts will get reported to the business credit reporting agencies.
Then and only then will you have an established business credit profile and score. Once your business credit’s established, you can start to get approved for store revolving credit next.
You should seek out vendors who will approve a business for credit, even if none is established yet. There are actually many vendor sources who are well known for this: Uline, Quill, Reliable, and Laughlin and Associates, just to name a few.
To start business credit, you first should get approved for accounts with these vendors.
Some will require you purchase their products first and some will have you make three orders and pay before they’ll issue you a line-of-credit. But all of the sources I listed will approve a brand new business, even if you have no credit now.
You’ll want to insure you have a total of five payment experiences reported before you even think of applying for store credit. A payment experience is the reporting of an account to a business reporting agency.
So Quill, for example, reports to both D&B and Experian that means that one account will count as two payment experiences. Laughlin only reports to Experian, counting as one payment experience.
Once you have five payment experiences reporting, next you can start to secure revolving store credit cards for your EIN.
KEEP IN MIND, all applications will ask for your SSN but you do NOT need to provide your SSN on the application. If you do supply your SSN, they WILL pull your personal credit… and if it’s bad you’ll get denied.
When you leave the SSN field blank, they’ll pull your business credit. And once they see that you have business credit established and at least five payment experiences reporting, then you’ll start to get approved for store credit.
Most major retailers do offer business credit as well as consumer credit. Staples, Office Depot, Home Depot, Lowes, Target, Walmart, Costco, Sam’s Club, Radio Shack, Best Buy, BP, Chevron, Amazon, Shell, and most other stores offer business credit.
Some sources like Home Depot might have more stringent approval requirements and want to see big revenue and three years in business for approval of no personal-guarantee credit. But most sources don’t have these requirements, if you have business credit established.
WARNING!!! Do NOT put your SSN on the application. Do NOT apply for revolving store credit without having at least five payment experiences reporting to the business credit reporting agencies. If you do either of these, you’ll be denied or you’ll have to give them your personal guarantee.
Once you have a total of 10 payment experiences reported to the business bureaus, then you can start to get cash credit cards. Cash cards are those issued by Visa, MasterCard, even AMEX, and are cards you can use anywhere, not just cards you can only use in one store.
It’s recommended that at least one of your 10 payment experiences has a high limit of $10,000 or more before applying for cash credit. Dell is a revolving store source who regularly approves business owners with established business credit for an account with a limit of $10,000 or more.
Key Bank and Home Depot are two sources that offer revolving cash credit cards you can use most anywhere, many banks offer these also. Just keep in mind, before applying you MUST have at least 10 payment experiences… and one account should have a limit of $10,000 or higher.
When you follow these steps, your business can have an established business credit profile and score.
This profile and score can then be used to get you credit in your business name, regardless of your personal credit, and without a personal guarantee.
Then you’ll want to continue building business credit, applying and getting more credit, using that credit, and getting approved for higher, and higher credit limits