Vendor Credit Lines Are Like Small Business Loans

April 5, 2010 By Marco Carbajo

Vendor Credit Lines

Qualifying for a bank loan or other traditional sources of business financing can seem like an impossible task if you’re like most small business owners that haven’t even begun to establish credit in the name of your business let alone have any type of business credit scores.

You probably believe that you have no other choice but to use your personal credit but let me share with you a viable alternative before you slap down your plastic.

Vendor credit lines also known as trade credit is when a company extends credit to your company in order to allow you to buy its products and services upfront but defer the payment for a later date.

After you purchase a product they will issue an invoice which must be paid according to the terms of your agreement. If you’re a startup company or have no business credit then most net 30 vendors will have net 10 or net 15 day terms initially. Keep in mind these terms can be extended to net 30, 90 or even 120 day terms if you continue to build a solid payment history with your vendors.

Some of the major benefits include:

Conserving Cash Flow – By purchasing products or services and deferring the payments for a later date your business is able to conserve cash and have the funds it may need for other important expenses.
Establish Business Credit Scores – As each invoice is paid on time you begin establishing a positive payment history on your company’s credit files. Remember it takes a minimum of four accounts reporting to generate business credit scores on your Dun & Bradstreet business credit report.
Improve Credit Capacity – When your vendor credit limits increase so does your company’s overall credit capacity. Larger credit limits showing on your files will improve the overall creditworthiness of your business simply from the fact that banks and lenders will see that other companies are willing to extend credit to you in much larger amounts.
No Personal Credit Check or Guarantee – The majority of vendors will not require a personal credit check or guarantee which clearly protects your credit scores and liability.

Now for business credit building purposes there are some key factors that never get mentioned which can make all the difference in the world.

You see not all vendors report your payment history, in fact out of half a million vendors in the U.S. less than 6,000 supply payment data to a business credit bureau. So either you should select the right companies to apply with or you can always purchase one of DNBs trade reference programs.

Several other factors to consider are the frequency of reporting and how the data is being reported by your vendors. Some report on a quarterly or even yearly basis which does not help in building your profile in a timely manner.

As far as your payment data it’s vital that the actual vendor credit limits that your company is approved for displays on your file not just the amount owed. Some vendors will not report this information and it can have a dramatic impact on how lenders view your company’s creditworthiness plus it affects the size of the credit limit recommendations that business credit bureaus list on your file.

I know this can seem confusing and time intensive but there are ways to streamline this whole process taking all the guesswork and frustration out of the equation. By taking advantage of all the tools and resources available you can improve your company’s ability to qualify for the business financing it needs.

Looking to access vendor credit lines? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit services membership helping business owners build business credit without personal guarantee. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.

How Shelf Corporations Improve Business Credit Building

October 1, 2009 By Marco Carbajo

There has been a growing interest in shelf corporations from many of the investors, small business owners and entrepreneurs that I have the opportunity to speak with on a daily basis who are looking for ways to speed up the business credit building process.

I felt that by sharing some insight with you on shelf corporations and what are the key business credit building advantages will better prepare you in making a more educated decision if this is an option you’re thinking about.

Now, let’s first cover the basics.

What is a shelf corporation?

A “Shelf Corporation, also known as an “Aged Corporation” (or “Aged Company” when referring to an LLC, for example) is a corporation that is already formed, but not in use, and ready for “purchase” by a new owner. There are many reasons that people purchase shelf corporations, and there are certain things to look out for when considering one of these “ready-made” corporations which I will cover shortly.

Now one of the questions I’m sure you’re thinking is “Why should I purchase a Shelf Corporation?”

Shelf corporations allow you to engage into business, credit, or real estate agreements as an established company without having to go through the long waiting period of establishing a brand new corporation.

Most potential creditors or business resources are less likely to extend credit or lend to new or up-start corporations. By approaching them as an established corporation or company, the more likely your business has the chances of more access to credit lines, banking relationships, leases, and so on.

For example, during the initial stages of building business credit there are some vendors that will only extend credit to companies that are at least 2 years in business. In some cases they also require a personal guarantee if the business is less than a year old. By purchasing a shelf corporation that’s three or even ten years old can drastically increase the number of credit opportunities available to you.

Now don’t worry if your existing corporation is less than 2 years old because you’ll still be able to obtain business credit, but the amount of banks that you can apply at will be limited. If you’re planning on starting a corporation or setting up another corporation then this may be an option to entertain.

Shelf corporations can also offer a large increase in borrowing power as well as enhanced credibility for your business when talking to customers and lenders.

Remember the age of the owners does not necessarily correspond with the age of the company.

When the H.J. Heinz Company advertises that it was established in 1869, it doesn’t mean that all of the shareholders are well over 100 years old. It simply means that the company was filed in that year. You can take advantage of similar credibility benefits when advertising to customers.

The age of your company can give greater credibility to customers and lenders than a business that was recently established. So, purchasing companies with established credit and existing credit lines can give the business a big financial boost.

Here are the Top 5 Advantages of a Shelf Corporation

1. Saving time and expense of forming a brand new corporation

2. Instant access to contract and government contract bidding. Most states require that your company be in business for a specified minimum length of time.

3. Instant credibility and an appearance of corporate history.

4. More attractive to potential investors and investment capital.

5. Faster and easier access to banking relationships and lines of credit.

If you currently have a shelf corporation then you can use it to obtain credit card funding. As far as purchasing a shelf corporation, given the current credit crunch, banks want to see more than even being a 2 year old corporation. So if your only interest is in applying for bank financing keep in mind Shelf Corporations have no business history, tax returns, financials and existing revenue.

Caution!

There are many companies that sell shelf corporations that have done business in the past, DO NOT buy these! If a shelf corporation has done business in the past and you purchase it you also assume all past liabilities of that company. So if the company has had any lawsuits brought against the corporation from the past you are now liable because you now own the corporation.

It’s critically important that the shelf corporation you are considering not have any inherent or lingering liabilities. For the most part, this can be assured by looking into the history of the corporation and ensuring that the extent of its business activities were limited or non existent except for the application of an Employer Identification Number and maybe the formation of a bank account.

Shelf corporations can be a great option if the proper due diligence is taken and there are many aged shelf Nevada corporations, Delaware corporations, Wyoming corporations, offshore corporations and Canadian Corporations that are available but be sure you do your homework.

Are you considering a shelf corporation?

P.S If you are interested in a LLC Shelf corporation that’s 1-2 years old let me know and I would be happy to help you. I have several Nevada LLC’s with Wells Fargo bank history. Email [email protected] if you’re interested.

Remember – “Formal education will make you a living; self-education will make you a fortune.” ~ Jim Rohn

About the Author

Marco Carbajo is a business credit specialist, author, speaker, and founder of http://www.startbusinesscredit.com . Want to learn more about how to build business credit and obtain unlimited financing for your business? Claim Marco’s popular FREE business credit seminar ($597 Value), available by simply submitting your email below To Your Success! =>

How to Build Bank Credit for Your Business

September 8, 2009 By Marco Carbajo

Recently I shared the benefits of building business credit with each of the business credit agencies. Separation of personal and business credit is a must for small business owners in order to eliminate personal liability and protect the integrity of the corporate veil.

While this strategy creates a Paydex, Small Business Credit Risk Score, and Intelliscore for your business it’s not the only rating you should pay close attention to.

Your business will also need to establish effective ‘Bank Credit’.

Bank credit is totally separate from building business credit and in no way affects your ability to build strong business credit scores.

“Bank Credit” makes your business more credible in the eyes of lenders. In this post, I want to share with you the ‘3 Main Components of Building Bank Credit’ which are:

Business Bank Account & History
Bank Rating Number
Obtaining Your First Business Bank Loan

So let’s get started!

Business Bank Account

The first step in establishing positive bank credit is to make sure that your business name and mailing address, as listed on your business bank account, matches exactly how your business name and address appear on any legal paperwork that’s been filed with the State. It must also match exactly with the name and address that appear on your Federal EIN paperwork. If it doesn’t match you’ll have to correct it immediately!

Business Bank History

Most lenders also determine the age of your business by the date you first opened your business bank account and not the date that appears on your Incorporation, LLC, or EIN paperwork. However, in some instances banks may also require 24 months seasoning from the start date of your business as well.

Your business banking history is vital to your ability of being able to secure larger business loans with banks. Lenders will look to see how long that relationship has been established, so once you get your account set-up don’t change banks!

The longer your business banking history, the better the borrowing potential you have.

Bank Rating Number

Your business bank account reflects how you manage your cash flow. Lenders want to know that your business cash flow is capable of handling the business debt and expenses on a consistent basis. Bank accounts with low average daily balances, or that show many NSF returned checks, can get your business loan applications declined right away.

If a loan amount requires a $1,000 month payments then lenders need to see at least a “Low 5” bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months.

Bank Rating	Account Balance	Bank Rating	Account Balance
Low 4	$1,000 – $3,999	Low 5	$10,000 – $39,999
Mid 4	$4,000 – $6,999	Mid 5	$40,000 – $69,999
High 4	$7,000 – $9,999	High 5	$70,000 – $99,999

Bank ratings consist of three factors…

1. The first factor is your balance rating. This rating is your average minimum balance maintained in your account over a three (3) month period. $10,000 will rate as “Low 5”, $5,000 rates as “Mid 4”, $999 rates as “High 3”, and so on. You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5” rating, most lenders will assume your business has little ability to repay.

2. The second factor is the bank rating cycle which is three (3) months. You’ll want to have at least a low 5 for the three months prior to applying for larger loans.

3. The third and final factor has to do with how you manage the account. NSF (bounced) checks destroy bank ratings. From this point forward, NSF checks are something you can’t let happen. I would suggest that you add overdraft protection to your account as soon as possible.

Obtaining Your First Business Bank Loan

Getting your first business loan from a bank can seem like an impossible task. The majority of the business loan applications at banks get declined because banks won’t lend to just anybody … or will they?

This one business bank loan strategy provides a powerful boost to building business credit fast. The business bank loan needs to be in the exact name of your company. It should be under your Federal EIN and report to the business credit agencies, specifically Equifax Small Business and Corporate Experian.*

So how do you accomplish this? Under this Bank Loan Program you will be securing a business loan with a certificate of deposit (CD) at the bank that is extending the business loan. You’ll make a deposit into a CD account at an SBA preferred lending bank. Then, you receive a business loan for 100% of the value of the CD.

This process works very well and works every time as long as you’re personal credit scores are not in the low 500 range. If your scores are in the low 500’s, it’s best to try smaller business banks and talk to an individual banker first.

The Benefits of a Secured Bank Loan

It will appear on your business credit report just like any other loan.
There will be no note in the file, or on credit reports, that show it as “secured”.
It will make your business credit report stand out to other lenders and creditors who obviously know how difficult it is to get a business bank loan.

If you’re personal credit is a large issue and you just can’t find a business bank to do the CD program for you … don’t worry. You can still build your business credit without the bank loan; the bank loan just makes it faster.

*N.E.C. members are provided access to our list of banks who have done the CD-Secured Business Loan program

Remember – The secret of business is to know something that nobody else knows. ~ Aristotle Onassis

To Your Success!

Marco Carbajo

About the Author