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the
business's progression.
For example, in my business, if I'm working on a project or promoting and
advertising my business, it costs 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 and
Data Universal Numbering System (D&B DUNs Number - for more information, log
into the IWP website at InvestWithPassion.com), 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. I research vendors on a weekly basis. I have compiled an
extensive list of potential vendors for my clients and my personal business.
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. I can have 5 lines of credit set up
for a business 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 15th, any payments made before
the 15th are considered “paid before time,” payments made on the 15th are
“paid on time,” and if paid on or after the 16th 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 am I 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.
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For
more information about upcoming workshops and the services provided by A1
Business Credit, contact Paris Hill at 312-523-2037 or visit her on the web
at www.a1businesscreditbuilders.com. |
