Most Businesses have day to day expenses that would be best handled by using a business credit card and there are many benefits to using a business credit card for your business expenses.
Unfortunately, some business owners are forced to use their personal credit or even worse, operate with cash-on-hand because they don’t have access to business credit.
In order to get a business credit card you must properly set up a business, get an EIN number from the IRS, open a business bank account and then apply for the desired business credit card. The credit card companies will factor in your personal credit score.
If you don’t have good personal credit, you can still get a business credit card with a few added steps and time. Your route to a business credit card is as follows: Set up your business as an LLC or Corporation within your state, apply for an EIN number with the IRS, Get a Duns Number from Dun and Bradstreet, and set up smaller Net30 Vendor Accounts. Place orders on the vendor accounts where your payment is due in 30 days, pay on time and begin to establish a credit history. After you have worked with vendors, you will begin to qualify for store cards. Pay those on time and your business will begin to qualify for Credit Cards.
How To Properly Set Up Your Business Within Your State
In each U.S state, you can file a new company with the Secretary of States office. It is something you can do on your own or hire a lawyer to do on your behalf.
The type of business you file should be an LLC or Corporation and is best decided based on what legal protections and tax issues come along with your type of business. Many people choose an LLC because it is a simple form of organization and its income can be reported as a flow through on your 1040 Return.
You may be wondering why you must go through the trouble of setting up a business. Your business is what will be requesting the credit, so it must exist as an entity separate from you in order to be considered for credit without requiring your personal credit history as a basis for approval.
Getting an EIN Number From The IRS
This step is the next phase of setting your company up as a separate entity. Just like you have a social security number that identifies you as an individual, a company has a Employer Identification Number (EIN) also called a Tax I.D. Number that identifies it as an individual for Tax purposes and loan applications and credit history tracking.
Setting up your tax id number is a fairly simple and straight forward process with the IRS. You can go to the IRS website to input the information about your company and receive your Tax ID number within minutes.
Follow/Click this link to the IRS website to set up your new EIN number for your business. Go ahead and check it out. It will open in a new window and save your place here on our site.
The Importance and Purpose for Setting Up Your Dun’s Number
Many people have a familiarity with credit on the consumer side. Most people know that Transunion, Equifax and Experian are the major reporting agencies that lenders use to make decisions about issuing credit accounts to consumers.
On the business side, there is another company that is very important to your business credit future. That company is Dun and Bradstreet. Dun and Bradstreet is one of the major providers of business reporting data that lenders rely on in the business world.
Most People know that personal credit scores range from 300- 850 and the score is commonly called your FICO. With business credit the scoring system calls your score a Paydex Score and it goes up to 100. Having a business score at 80 and above is very good.
You can get your Dun’s number from Dun and Bradstreet at no cost. They offer other programs for credit building along with some other products they sell, but they are NOT needed for you to build your business credit. Let me repeat…you do not need to purchase anything from Dun and Bradstreet in order to get good business credit even thought they do offer products that can be helpful.
This link will get you to their site and the page to set up your Dun’s Number.
Setting Up Your New Vendor Accounts
Once you have your Duns number, you can set up accounts with Vendors like Quill, Grainger or Uline. Each of these companies will allow you to order goods for your business and give you 30 days to repay it. This is called a net30 account.
They call it a net30 account because you place your order, they send you the product and you must pay for it within the 30 days.
Starting an account with these companies helps you by allowing you to purchase on credit and thereby establishing a credit history with those timely repayments.
It is important to choose companies that report to Dun and Bradstreet. You have a goal to build a credit history outside of your own personal history, so a company that doesn’t report is a waste of your credit building time.
Sometimes these companies will require you to make an initial outright purchase or two in order to establish an account and build a bit of buyer trust with them. Consider that they are taking a risk by sending products to companies without knowing if they will be repaid…until they are.
For an example of how the process can work, check out this link to find out about an experience one of our new business owners had recently with Quill.
Setting Up Store Accounts
Once you have set up your net30 accounts and successfully paid on them for about 3-6 months, you can apply for store cards.
Store cards are the next step in building your business credit. Stores like Staples, Home Depot and Lowes are a great place to purchase supplies for your business and build your business credit at the same time.
Make sure to use your EIN number when completing your application. This will allow the payments to be reported to your business EIN instead of your personal Social Security Number.
Once you get your store cards, use them to make purchases for your business and continue to pay them timely whenever they are due. Paying them when the invoice arrives and before the due date is even better.
Gas cards can be another type of store card that can help you make purchases for your business while also building up your business credit.
Getting Your Business Credit Card
Business Credit Cards are considered “cash credit”. They are given that classification because you can make purchases anywhere they are accepted and directly access cash through advances, and that classification makes them more difficult to obtain from lenders. Once you have done all of the previous steps, lenders will begin to approve you for cash credit.
Business Credit Cards are great for business owners for multiple reasons.
The money you spend for your business on your business card is not reported to the consumer reporting agencies, so you personal debt ratio is not affected by your business spending.
Business Credit Lines have 5-10 times the limits granted than personal cards.
The more you use and pay on-time, the high the limits get. Business credit was made to be used. Consumer credit on the other hand will penalize you for using too much of your credit. Lenders recognize the high costs and leveraging needed to sustain and/or grow a business. As a consumer you are expected to have enough money for whatever you need, but a business needs money to grow.
The steps above are the route to getting Business Credit or your Business. For more information and details about the process of getting business credit, look through our different articles. Thanks for checking us out!
Now let’s Get Down To Business….Credit!