Establishing Credit For Your Business

Independent Of Your Personal Credit

Well, knowledge is power and there is an easier way.  Invest With Passion! Magazine sat down with Paris Hill, CEO of A1 Business Credit Builders, to discuss how business owners can cut through the red tape of establishing business credit independent of using their personal credit.

IWP!:              Why is it important for business owners to establish business credit?

Ms. Hill:          Establishing business credit helps businesses function.  If business owners are working off of their own income, it has the potential to slow the business’s progression.  For example, in my business, if I’m working on a project or promoting and advertising my business, it cost me money.  When I have to print material and other necessary items, I don’t pay for those expenses out of my pocket.  It goes on my business credit and as soon as income comes in, I pay it off.  Utilizing business credit is a way that I leverage my business expenses.

IWP!:              What is the process for establishing business credit?

Ms. Hill:          First, the business owners must separate the business from their personal business.  They should establish a corporation, obtain a tax ID number & DUNs Number, and open a business bank account.  Then they should research vendors that will allow them to get credit without using their personal credit.  There are companies out there who will work with business owners and they must do their due diligence to locate them.

IWP!:               With personal credit there are the 3 major bureaus: Equifax, Experian, and Trans Union.  Is it the same with business credit?

Ms. Hill:          There are several business credit reporting agencies, however the main two are Dunn & Bradstreet (D&B) and Experian.  (The) majority of the creditors rely solely on Dunn & Bradstreet, while others rely solely on Experian.  Now with Experian, it takes a little longer to establish credit.  So, it is recommended that the business owner initially apply for credit with the creditors that utilize D&B in order to build up Experian.  Sometimes, it can take up to 6 or 9 months to build up Experian.  Once the business has established credit with Experian, then the business owner can start going after the creditors that rely solely on Experian.  I have a database of about 1,000 lenders and I know which ones utilize D&B and which ones utilize Experian.

IWP!:               How long does the process take?

Ms. Hill:          The process can take as little as 90 days.  Business owners can have 5 lines of credit within two weeks after the corporation is set up.  It usually takes about 90 days to get a Paydex Score, as long as the business owner is using the credit that is established and creating a payment history.  If not, it could take up to 6 months.  The Paydex Score is equivalent to the FICO score for a business.   Once the business owner has the Paydex Score, they can qualify to receive all types of credit without using their personal credit.

IWP!:               Are there any limitations to establishing business credit?

Ms. Hill:          Yes there are limitations.  Business owners are limited to which vendors will work with them in establishing credit.  However, the vendors are out there and the business owners can research them and determine which bureau(s) they use and what their criteria is for obtaining credit.  

IWP!:               Is there a minimum credit limit starting out?

Ms. Hill:          Well the credit limit depends on the vendor, however everything starts out with a net 30.  Meaning anything you get must be paid back in 30 days.  I suggest using small amounts, $20-$30, and when the invoices come in – pay them immediately.  Unlike personal credit, where there is an additional 29 days after the due date before the account is reported 30 days late.  With business credit, 1 day after the due date is reported late. The Paydex score measures three different categories: payments before time, on time and late.  For example, if the bill is due on the 15^th, any payments made before the 15^th are considered “paid before time,” payments made on the 15^th are “paid on time,” and if paid on or after the 16^th it is considered “paid late.”  Another difference is paying “before time” is weighed higher on the scoring metrics than “on time” & “late” payments.  

IWP!:               Should the researched vendors be tailored to match the business owner’s business type?

Ms. Hill:          Sometimes, that is not always the case when the business is just starting out.  I have a client that owns a candy shop.  It is challenging to find candy vendors who report to D&B to offer her a net 30.  There are businesses that will offer the net 30, but they do no report to D&B.  Therefore those businesses will not help her establish the credit she is seeking. 

Sometimes business owners may have to utilize vendors that are nowhere near their business type.  For example, I have a battery company that I use all the time.  I know it’s a versatile account and I know they always report.  My clients always ask, “what I’m going to do with a battery account.”  Let’s think about it - if the business owners have children, they use every battery in the house for toys, video games, remote controls, etc.  So ordering $20 worth of the batteries, that would normally be used, from this company will report on their business credit.    

IWP!:               When vendors are viewing the business credit reports, do those hits count against the business as inquiries?

Ms. Hill:          No, that is another difference between business credit reporting and personal crediting reporting.  Inquiries are not reported, therefore other businesses don’t see who has pulled the business credit report nor does it affect the score. 

IWP!:               How does the business credit apply specifically to obtaining mortgage financing for real estate Investors?

Ms. Hill:          When shopping for a mortgage, initially the lender will still look at the borrower’s personal score.  As long as the FICO score is above 650 and the company is established they will do the financing.  Depending on the lender, they may or may not attach the borrower’s personal credit to the loan.   However, once the business owners has proven themselves with timely payments on the first couple of properties, the lender will be more inclined to give the loan without viewing or attaching the borrower’s personal credit. 

IWP!:               What are the Paydex Score ranges?

Ms. Hill:          The range is 0-100.  75-80 is excellent.  70-75 is good.  Anything below 69, the business owner will not be able to get credit.  The goal is the get to 80 and you can get just about any available credit. 

Back to Article Home