Business Opportunities Created by Using Business Credit
Entrepreneurs should not miss the opportunity to build and maintain credit both individually and as a business owner. It’s important if you want to grow your business and not rely on your personal credit to do it. The reality is very few business owners actually understand how to establish business credit.
Trade credit is the term used to refer to credit that one business extends to another. Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report. These are some of the major credit bureaus that compile these reports:
- Paydex from Dun & Bradstreet
- Experian Business
- Equifax Business
- Business Credit USA
Information provided to the business credit bureaus is sent in voluntarily. Business credit scores range on a scale from 0 to 100. Anything above 80 is considered an excellent credit rating. Business credit bureaus look at one thing, whether a business makes payments on time and meets creditors’ payment terms.
How to establish a business credit profile
It’s important to note, you can only establish a separate business credit profile if you are doing business as a corporation or LLC. You will not be able to build a separate credit profile if you are doing business as a sole proprietor or partnership.
Register your company with the business credit bureaus and comply with their requirements e.g. have the necessary local, state and federal business licenses. Many credit bureaus will expect you to have a professional business plan as well as financial statements. Duns & Bradstreet issue a unique D-U-N-S number to each business registered with them. The D&B D-U-N-S number is the industry standard for keeping track of the world’s businesses. Many financial institutions, corporations, trade associations and more will require you to have one.
Apply for a credit line even if you actually don’t need it. Find companies that will establish credit for your business without using your personal credit information. Once you have done this, make sure that they report their payment experiences to the business credit bureaus. Office supply companies like Uline.com, NEBS.com and Viking.com will establish a small line of credit for your company and they automatically report your payment history to Dun & Bradstreet.
Don’t fall behind in your payments and ensure there is continuous activity. You may have a score of 80 now but if you stop using your business credit, your score will drop. The effort you put into establishing a good business credit score now will serve you well in the future. Also, remember to be vigilant and monitor your credit regularly. Don’t be afraid to challenge any errors.
|Paydex Score||Payment Expectation|
|100||Expect payment may come early|
|90||Payments generally made within early payment discount period|
|80||Payment is prompt|
|70||Payment is made 15 days beyond terms|
|60||Payment is made 22 days beyond terms|
|50||Payment is made 30 days beyond terms|
|40||Payment is made 60 days beyond terms|
|30||Payment is made 90 days beyond terms|
|20||Payment is made 120 days beyond terms|