The Reasons to Build Business Credit? Get a Small Business Loan (of course)
Do you want to be able to access business capital? You want to get a small business loan, right? Then your business needs to stand on its own for financing. The bottom line is that you won’t be able to do that until it you have built strong business credit scores with Experian, Equifax and Dun & Bradstreet. (A word of caution here: D&B will try to sell you on their business credit-building program. Trust me, what I’m giving you is everything you need to do it yourself and you’ll save yourself 1,000’s of dollars).
According to Wells Fargo Bank
Separating Personal and Business Finances
“The longer you delay establishing business credit,
the longer you delay taking advantage of business loans.”
Now there are 6 Steps to building business credit. I’m going to be giving you the high level overview in the next few blog posts. I will then be giving you the step-by-step details later on. Again, I’m going to have to warn you; don’t take a scattershot approach to this. It’s like a recipe for your favorite cake. There are ingredients that have to be mixed in a precise order and baked at a specific temperature for a certain amount of time. Skip a step and it’s like leaving out the sugar. Trying to get it done too quickly is like baking it at 500 degrees for 15 minutes instead of 325 degrees for 45 minutes. Get the point?
Let’s jump in. Steps 1 and 2 are the basic building blocks, the foundation, and they are critical to complete. This preps your business so that your business is ready to build strong business credit scores. I’m telling you in no uncertain terms that skipping and completing Steps 1and 2 and it is impossible to build business credit scores that are totally separate from you personally (your personal credit score otherwise known as FICO).
Steps 3, 4, 5 & 6 are where you actually build business credit. Pretty exciting, right?
So here’s the bigger picture. First you’ll set your business up with all 3 business credit agencies; Equifax, Experian and Dun & Bradstreet. Next, you’re going to obtain five vendor lines of credit that report to those 3 agencies . You’ll then get 3 business credit cards that also report to those agencies. And finally I’ll show you how you can get your first business bank loan that reports to the business credit agencies. How cool is that?
Below is summary of each Step and what you must do to successfully build business credit…
The first thing we are doing is setting the foundation for building business credit. It’s what puts you in a position to get that small business loan.
Naturally, you have to making sure your business is ready to build business credit. So how do you do that?
To start we are going to cover the foundational issues. Let’s begin with the name of your business. Even if you are already incorporated or have been in business for a while, you need to check to see if your business name conflicts with other established businesses or if it could potentially cause Trademark infringement.
Dun and Bradstreet – Credit Name Search
Check to see if any businesses with the same or very similar names are listed with Dun and Bradstreet (D&B). To use D&B’s Find a Company search Click Here. Be sure you select “Nationwide” on the “Select a State” drop-down. Your business name should not already be listed with D&B and needs to be unique. The reason for that is you do not want your business always having to explain “why it is not that other business with the same name”.
Knowx.com – National Name Search
Check to make sure that your business name does not conflict with other businesses nationwide. To do that you can use www.Knowx.com. They charge $65 for a national search but it is well worth it. If you would rather not pay the $65 you can run a business name search yourself on each Secretary of State’s web site.
Trademark – Infringement Name Search
Check with the U.S. Trademark office to make sure that your business name will not cause Trademark infringement. To do that for free please Click Here, then click on Search under “Get a Trademark Registration…” From there, select New User Form Search to submit a query. You want to find that your business name is free and clear. Doing this search on your own is a little complicated, please be sure to read all the Trademark Office instructions.
Web Site Address – Domain Name Search (.com)
You need to verify that the domain URL (website address) for your business name is not currently being used. Go any domain registrar to check (Like Godaddy.com). You should purchase your business name URL (domain name) if it is available as a “.com”. For example if your business legal name is “The Bike Stop”, then “www.TheBikeStop.com needs to be available and you should secure it.
Web Listing – Online Directory Search
Finally, you need to search the online directories to see if your business is listed correctly, or even listed at all. If your business shows-up, make sure all the information is correct. If it does not show- up, then be sure to create a free business listing with the Manta directory.
Now let’s move on to Step 2
Your Business Fund-a-bility
Your bank accounts are a vital business credit-building component
The big question is, “ how fund-able is your business?” This includes several components that determine how your overall business is seen by lenders, investors, insurers, suppliers, and more. Basically, we know that your business was worth the risk for you, but is it worth the risk for them?
The answer will increasingly be “yes” as your business credit grows. So by improving the fund-a-bility of your business is doing more than just helping you build strong business credit. The idea is to improve the overall “health” of your business while greatly increasing your ability to succeed both now and long term.
So what makes up this fund-a-bility. These are the major components of your Business including your Business Bank Accounts, Business Assets and Business Revenue.
I can’t tell you how many times we see this challenge at Sunwise Capital when we look to fund what appears to be a great business. Know that it is vital that the way your business name is listed on your business bank account(s) matches exactly with how your business name appears on your legal paperwork that has been filed with the State. It must also match exactly with the business name that appears on your Federal EIN paperwork.
IF IT DOES NOT MATCH, GET IT CORRECTED IMMEDIATELY!
I promise you this stops the lending process COLD. On top of that all lenders determine the age of your business by the date you first opened your business bank account. The date that appears on your Incorporation, LLC, or EIN paperwork really doesn’t matter to lenders or to the business credit agencies.
Everything in business lending and business credit starts from the day you open your business bank account.
Your business banking history is vital to your future success of being able to secure business loans. Lenders will look to see how long that relationship has been established, so once you get your account established and/or corrected,
DO NOT MOVE BANKS. Don’t take this too lightly. Again, it’s a big mistake to move your account. (Opening another concurrent bank account is fine and build it’s history). The longer your business banking history, the better it is for your business borrowing potential.
Do yourself a favor and if you haven’t already done so, take the time to verify that the business names listed on your State, Federal and Banking paperwork all match 100% and all have your business listed at the exact same mailing address. These are some of the things we look consider at Sunwise Capital when we look at your business loan application.
Stay tuned and let me know your success.