“Business credit” is credit that’s linked to a business’s EIN number, not the owner’s social security number. Every highly successful publicly owned and private company in the United States has business credit, it’s how they get large amounts of credit and money without their CEOs or owners needing to supply a personal guarantee.
Even though this type of corporate credit is used by the largest businesses in the country, most entrepreneurs don’t know that any business of any size can actually obtain corporate credit. Even startup businesses can build business credit as long as they know and understand the steps to do so.
For credit repair companies this is very important because on average 25% and sometimes more of the clients you talk to also own businesses, and in turn, may need business credit repair services in the future.
In this post, we’ll get you details on five essential things you should know about corporate credit and business credit repair.
#1 — Business Credit is Not Linked to Personal Credit
Business credit is credit for a business, linked to the business EIN number not the social security number of the business owner. This means when done properly, business credit can be built without the SSN number even being supplied on the credit application.
With even a little business credit established a business owner can start to get approved for store credit cards at most major stores. When applying they can leave their social security number off of the application, and when this is done the credit issuer then pulls the EIN credit report instead.
With established tradelines, a business credit score, and an established business credit profile, the credit issuer then will see what they need to be able to issue a credit card approval based on the EIN credit, not even looking at the personal credit report.
This means there is no personal credit check, so personal credit quality is not a factor at all in the approval decision. And there is no inquiry placed on the consumer credit report. Another bonus is the accounts don’t report on the consumer credit report, so as the accounts are used there won’t be any impact on the consumer credit score.
#2 — Business Credit Scores are Mostly Based on One Factor Only
There are many different credit scores in the business world. The most common of which is the Paydex score from Dun & Bradstreet. This score, as well as Equifax Commercial’s primary score, are solely based on one factor, payment history.
This means all that’s required to get a good business credit score is to get approved for accounts that report to the business reporting agencies and paying those accounts as agreed you’ll get a good score. And you can accomplish this even as a startup business within 60 days.
Let’s take a look at how the most popular score in the business world, the Paydex score from Dun & Bradstreet, is actually calculated:
- Expect payment may come early — 100
- Payment is prompt—80
- Payment comes 14 days beyond terms—
- Payment comes 21 days beyond terms—60
- Payment comes 30 days beyond terms—50
- Payment comes 60 days beyond terms—40
- Payment comes 90 days beyond terms—30
- Payment comes 120 days beyond terms—20
As you can see, it’s solely based on payment history making it easy to control and fast to build, it means it’s also relatively simple to repair business credit. This is just one of a multitude of benefits business credit provides.
#3 — Business Credit Cards Have No Personal Risk but Very High Limits
One of the biggest benefits of business credit is that the business owner doesn’t need to personally guarantee their business debts. This means if the owner ever goes late on an account or defaults, their personal assets can’t be pursued for collection, only the business assets can.
This is important as it separates the business’s liability from the business owner. It’s also important because it keeps the owner’s asset secure no matter what happens within the business. If given a choice, almost all business owners would rather not personally guarantee their business debts. This makes the process of business credit repair different than consumer credit repair.
And credit limits on business credit cards are much higher than with consumer cards. SBA states that limits are 10-100 times higher than consumer card limits, giving the owner a much greater credit capacity.
Personal credit cards are not designed to be used to grow businesses. Their limits are notably smaller because an individual doesn’t require as much capacity as a business does. For example, you might need only $2,000 to purchase a really nice personal computer, but for your business, you might need $10,000 to buy multiple computers.
So by default limits on business cards are much greater than consumer cards. This gives the business owner the ability to get very high limit accounts, and they can do this often within 90 days or less from starting to build their business credit.
#4 — Anyone Can See Your Business Reports
In the consumer credit world, anyone who pulls credit must have permissible purpose according to the FCRA. This means the person pulling credit must have the consumer’s permission to do so. But in the business world, anyone who wants to pull your credit can do so.
This means your customers, clients, prospects, even competitors can easily see what’s on your credit reports. They can easily access your credit scores, payment history, high credit limits, balances on accounts, tax lien data, collection data, and so much more whenever they want it.
And business reports can run as little as $15. This means for very little money anyone can easily get access to your reports, and any other business they choose to research.
Since this information is so readily available, it’s essential that business credit reports be built and maintained because they are a reflection of you and your business. And also keep in mind anyone looking to buy your business will also get this information before even thinking about making the purchase.
And of course almost all credit issuers and lenders also pull business credit before making a lending decision. So without business credit your ability to get real corporate credit or loans is significantly reduced.
For you and your customers it’s essential you build and focus on your business credit because it’s so easily accessible for others to get access to, and make important decisions based on the information provided.
#5 — There are 3 Steps to Build Business Credit
As great as business credit is Entrepreneur.com reports that 90% of business owners have no idea how to build it. But once the initial profile and score are built, it’s then easy to continue to use the EIN credit to qualify for more and more credit.
The key is to START building business credit. Once this done it becomes much easier to obtain more and more credit at your heart’s desire.
The first step in building business credit is to get approved for vendor accounts. These are credit issuers who will give you initial credit even if you have none now. Vendors such as Uline and Quill offers products you and your customers want and need, and they report the credit to the business bureaus helping you establish initial business credit.
With five vendor accounts reported on your business credit reports you’ll have tradelines, a business score, and profile. That will then be enough to move on to the second step of building business credit which is getting store credit cards.
Dell, Apple, Lowes, Staples, Amazon, and most other retailers do offer business credit cards without a personal guarantee. Some retailers like Amazon will approve you for credit even if you only have five reported tradelines, while others like Home Depot might require 10 or more. Regardless, most major retailers do offer corporate credit.
Once you have 10 reported tradelines you can then start to get approved for cash credit cards such as Visa and MasterCard accounts that you can use anywhere. Limits are commonly between $5,000-10,000 initially and this type of credit can be obtained within about 4-6 months from starting to build initial business credit.
Business credit provides so many benefits it simply can’t be ignored. Getting high limit accounts, getting access to credit quickly, not needing to supply a personal guarantee or a personal credit check, as well as having access to much more credit than one can ever obtain on the consumer side are only a few of these major benefits.
Ensure you introduce business credit to your customers. This way while you are repairing their consumer credit you can also be helping them build their EIN credit, providing even more value for your services.
For a free guide with more details for building business credit and even more information about offering business credit repair and loans as a service visit www.creditsuite.com/ein-crc.
Dive deeper with our ultimate guide on business credit repair.