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Why Is Building Business Credit So Important?

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Building Business Credit

According to Wikipedia an asset can be defined as a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. building business credit

Many startups rely on the use of some personal assets for business in order to conserve cash. Although money is often tight during the early stages, your goal as a small business owner should be to not only increase sales but to build your business credit.

In particular, business credit is an asset and considered an economic resource that make up the financial foundation of a company.
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Top 10 Reasons Startups Should Be Business Credit Building in 2012

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Business Credit Building

Will your startup ambitions become a reality in 2012? business credit building

In a recent study 70% of Americans indicated they want to start their own business but many never take the leap because of lack of knowledge and direction.

Let’s face it, starting a business can be intimidating and risk of the unknown is one major hurdle that few are willing to deal with.
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Building Business Credit: The 20 Essential Questions to Focus On

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Building Business Credit

 

Do you know where your company stands in the business credit building process?building business credit

One of the most important things you should first learn to do is ask the right questions. One of the classic mistakes that many small business owners tend to make is moving forward without having the proper framework in place.

Instead you can end up feeling scattered and spend lots of time trying to back track and correct mistakes you’ve made.

So in order to help you prevent from making those costly errors here are 20 essential questions you should focus on when establishing business credit:
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25 Business Credit Building Rules For Small Business Owners

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Building Business Credit

 

There are quite a bit of obstacles that every aspiring entrepreneur faces as they strive to do all the right things in order to make their dream business a reality.

It can be an overwhelming experience especially if you have limited support, funding and tools at your disposal. Whether you have a product or service to bring to the marketplace careful planning and execution can greatly improve the success of your new venture.

To help you in your preparation I have assembled my top 25 business credit building rules which can greatly improve your ability in obtaining the credit your company needs.

  1. Select the proper entity structure that best serves the needs of your business.
  2. Choose a business name that does not trigger red flags with the business credit bureaus.
  3. Assemble a winning financial team that understands the nature of your business and its vision.
  4. Avoid selecting a high risk SIC and NAICS classification code for your company.
  5. Do not use a P.O. Box as your business address. However, a P.O. Box for your business mailing address is acceptable.
  6. Verify that your business is 411 listed prior to applying for credit.
  7. Always use the same exact company information when completing registrations, applications and documents.
  8. Have a fully functional company website before applying for credit. Parked domains and web sites under construction are immediate red flags.
  9. Do not use a free email account for your company email address.
  10. Establish a “low 5” bank rating as soon as possible in order to build bank credit.
  11. Obtain diverse credit account types in order to establish a strong business credit profile.
  12. Pay invoices 10, 15 or 20 days ahead of the due date.
  13. Use your credit on a consistent basis in order to establish good payment history.
  14. Keep debt to credit limit ratios at no more than 30% in order to minimize your company’s debt exposure
  15. Utilize all credit types (business credit cards, business charge cards, business debit cards, prepaid business credit cards etc.) to your advantage as each one serves a unique purpose.
  16. Use secured credit cards in order to start building business credit for your company.
  17. Start a personal credit recovery plan if you have less than perfect credit.
  18. If you process credit card transactions every month consider using a merchant card in order to access cash at your convenience.
  19. Extend credit to consumer and business customers and increase sales by as much as 50%.
  20. Report the payment experience of your business customers to the business credit bureaus.
  21. Get your company listed with the major business credit bureaus.
  22. Establish a reporting bank loan on your company credit profile.
  23. Create a complete and sound business plan.
  24. Monitor your business credit profiles.
  25. Add positive trade references to your file through DNB’s trade reference builder program.

Let these rules serve as a helpful guide as you strive towards your goals of obtaining the financing your company needs.

Ready to access a step-by-step business credit building system? 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 membership helping business owners build small business credit. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet 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 American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.

Business Credit

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Business Credit

 

Business Credit is borrowed money that your company can use to purchase products or services it needs and repay the funds at an agreed upon date or time frame.  It can also refer to the amount of capital your business can secure without the use of personal assets.

The good news for you is that businesses of all sizes and entity types have the ability to create its own corporate credit identity completely separate from that of its owners.

Unfortunately most entrepreneurs are not aware of this and operate as a sole proprietorship which is a form of business structure in which the individual takes on all aspects of funding, starting and operating the business.

As a sole proprietor you keep all the net profits but you’re also taxed on them too. This is why entrepreneurs often rely on the strength of their personal credit reports to determine the amount of financing they are able to obtain for their business.

Unless you incorporate the IRS will automatically default your business as a sole proprietorship leaving you personally liable for all debts and actions made by the company.

By incorporating your business it now gets to be treated as a separate legal entity like a human being created through a legal process.

Similar to a social security number which is tied to your consumer credit files your business can obtain a Federal Tax Identification Number and establish its own business credit report.

Once you begin building business credit you can obtain everything from equipment, office furniture, supplies, and inventory or even lease automobiles through corporate fleet programs.

You should limit the use of your personal credit or guarantee by applying for vendor credit and if you apply for other sources of financing like a business line of credit then you will also need to maintain a solid bank rating too.

Business credit cards are another source of credit that your company can obtain with each card containing its own approval criteria and terms and conditions. Some cards may not be a good fit especially the ones who base its approval and payment reporting on the owner’s personal credit and not the business.

Your company can also apply for business loans which are either secured or unsecured and are traditionally funded by banks.

Each of these sources of business credit can provide the short or long term capital your business needs while protecting your personal credit and personal liability.

While it does take time to build a creditworthy company you can expect to save more money and obtain much greater financing than you would ever personally.

Are you ready to start building business credit for your company? 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 premium vendors, business credit cards, 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) =>

About the Author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building system for small business owners. 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. 

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