Building business credit is an underutilized business tool that small businesses and single-employee businesses often overlook or simply don’t know about. After all, it’s not like they teach you how to use business credit in school. And even if they did, that doesn’t mean you went to school for business before you opened your company!
So what is business credit? And how do you use it?
Business credit is credit that is obtained with an Employer Identification Number (EIN) instead of a personal Social Security number. The credit is linked to the business, not to you. There are a variety of benefits from using the business to obtain credit instead of giving a personal guarantee, but first, let’s look at how to get started.
Establishing Business Credit
As we mentioned before, business credit is credit in a business name, that’s linked to the business’s EIN number not the owner’s SSN. When done properly, business credit can be obtained with no personal credit check and no personal guarantee.
A lot of times, business owners get confused because they can obtain a “business card” using their SSN. This is not going to build true business credit. Unfortunately, this is still linked to your personal credit profile.
With most business credit cards you can use good CONSUMER credit to get approved. But what if your personal credit isn’t good? What if you don’t have a guarantor? This is when BUILDING BUSINESS CREDIT makes a ton of sense. Even if you have good personal credit, building your business credit helps you get even more money… and again, all without a personal guarantee!
How to Start Building Business Credit
Most consumer credit starts with secured credit cards or an account that has a well-established co-signer but co-signed accounts and secured accounts really aren’t popular or widely used in the business world. Most business credit starts with VENDOR accounts instead.
VENDOR accounts are accounts that typically offer terms such as Net 30, instead of revolving so if you get approved for $1,000 in vendor credit and use all $1,000 of it, you’d need to pay that money back in a set term such as within 30 days on a Net 30 account.
A Net 30 account would need to be paid in full within 30 days. In contrast, a Net 60 account would need to be paid in full within 60 days. Unlike with revolving accounts, you have a set time you must pay back what you borrowed or the credit you used.
Unfortunately from the roughly 50,000 vendors in the USA that offer trade lines only about 10% report to the commercial credit bureaus. So to start your business credit profile the RIGHT way, you need to get approved for vendor accounts that report to the business credit reporting agencies.
Once you’ve done this, you can then use the credit, pay back what you used, and the account gets reported to Dun & Bradstreet, Experian, or Equifax. Once reported, then you have tradelines, an established credit profile, and an established credit score.
Using your newly established business credit profile and score, you can then get approved for store credit, and eventually, store credit without needing to supply your SSN or personal guarantee.
This is possible because now your EIN credit profile is established, and can stand on its own. So if you leave your SSN off of the application, the credit issuer then pulls your EIN credit, sees a solid profile and score, and can then approve you for real revolving credit.
Contact us today to get business credit for your business! (888) 289-4760