What is a Business Credit?
Business Credit, also referred to as Corporate Credit, is credit that is obtained in a Business Name with business credit. The Business builds its own credit profile and credit score linked to the business EIN number, not the owner’s social security number, and with an established credit profile and score the business will then qualify for a credit. This credit is in the business name and based on the business’s ability to pay, not the business owners. Since the business qualifies for the credit, when done right business credit is obtained with no personal credit check required from the business owner. And, the business owner isn’t personally liable for the credit the business obtains.
Every highly successful business has business credit. This is how the largest privately and publicly owned companies obtain credit and capital to grow, without the CEO or owner needing to personally guarantee the credit and financing. But even startups can obtain the same type of credit, it’s just about understanding the proper steps. Business credit provides a lot of exclusively unique benefits. For one, a credit profile can be built for a business that is completely separate from the business owner’s personal credit profile. This gives business owners DOUBLE the borrowing power as they have both Personal and Business credit profiles built.
Business credit can be built quickly. Business credit scores are based only on how the business pays its bill. A business must first get approved for Initial credit, usually from VENDORS, once credit is approved, the business uses the credit to make purchases. Once invoiced, if the business pays the invoice quickly it IMMEDIATELY is issued a HIGH credit score. Vendor credit accounts can be obtained IMMEDIATELY. High-limit revolving store accounts can be obtained within 60 days. Fleet and cash credit can be obtained within 120 days and auto vehicle financing can be obtained within 6 months or less.
Why Business credit?
When it comes to credit, businesses have a much greater need for higher CAPACITY than a consumer does… This is why approval limits are much higher on business accounts versus personal accounts. Per SBA, credit limits on business cards are usually 10-100 times higher than consumer credit. When done correctly Business Credit can be built without a personal credit check, and without putting your SSN on an application, or inquiries on your report. Business credit can quickly be obtained regardless of personal credit quality and there is no personal credit reporting of business accounts. Utilization won’t affect your consumer FICO score.
Most business credit can be obtained without the owner taking on personal liability or a personal guarantee. This means in case of default, the business owner’s personal assets can’t be pursued. Business credit also increases the value of your company and, business credit gives you a competitive advantage. Almost any business can get business credit as long as it has an EIN number and entity setup. You don’t need collateral, you don’t need financials, you can be a startup, personal credit quality doesn’t matter and you just need to know the proper building steps. ANYONE can pull your business credit reports without your permission. Clients, prospects, potential buyers, even competitors can see YOUR business info. This means they can see payment history, high credit limits, employees and revenue, past payment performance and much more. ALL lenders and credit issuers also review your business credit reports to determine if you’ll be approved or denied, the rates and terms you’ll pay and how much you’ll get approved for.
What is a Trade Credit?
Vendor credit is sometimes referred to as trade credit. This type of credit is extended from one trader to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment and is often used by business organizations as a source of short-term financing. Trade credit is the largest use of capital for a majority of business-to-business sellers in the United States. For example, Walmart, the largest retailer in the world, has used trade credit as a larger source of capital than bank borrowing. Trade credit for Walmart is 8 times the amount of capital invested by shareholders and is the second largest source of capital for Walmart. Retained earnings are the largest.
Types of Trade Credit?
Trade Credit is usually offered with terms including Net 1, Net 15, Net 30, and Net 60. These forms of trade credit specify that the net amount is expected to be paid in full and received by seller within that 10, 15, 30, or 60 day time period. The word net in this sense means “total after all discounts”. An example includes a company such as Quill letting you purchase items on a Net 30 term. You make the purchase using your credit and are given an invoice with Net 30 terms. This means you have 30 days from the day the services are rendered or your items are shipped to pay your balance in full, minus any discounts. So, if you purchased $100 worth of office supplies, you need to pay back the $100 within 30 days of your items being shipped.
Legally speaking, net 30 means that you as the buyer will pay the seller on or before the 30th calendar day (including weekends and holidays) of when the goods were dispatched by the seller or the services were fully rendered. Transit time is included when counting the days. If you pay after that 30-day period, you’ll typically be charged interest for not meeting the terms. If you pay late, you’ll also damage your business credit scores if the account reports to a business reporting agency. Net 30 terms are the most popular form of trade credit. Net 10 and Net 15 terms are widely used as well, especially with contractors and service-oriented businesses. Net 60 terms are not as common due to the longer pay-back term but are sometimes issued.
How to Obtain Trade Credit?
Trade credit is VERY popular in the United States but, of the millions of vendors who issue credit, over 97% of them do not report to the business credit reporting agencies. When using trade credit to build your business credit profile, it’s essential you find vendors that will give you credit without a personal credit check and report your credit to the BUSINESS credit reporting agencies. The first step to using trade credit and vendors to build business credit is to find sources who will give you credit for your business, even if you have no credit reporting now. Most major retailers will offer EIN credit in your business name only but, only a VERY small few will issue you this credit if you have no business credit established already… unless you’re willing to provide a personal guarantee or credit check. If you do use your SSN when applying, the vendor will pull your personal credit and an inquiry will be placed on your personal credit report. Then, both your personal and your business credit will be used to make the approval decision. You’ll also be attaching a personal guarantee, so in the case of default, your personal assets can be pursued.
To obtain vendor credit without a personal credit check or guarantee, you’ll need to find trade vendors who will give you credit for your EIN, even when you have no established credit now. Once you find these vendors, it’s essential to make sure they report the credit to the business reporting agencies. The VAST majority of vendors don’t do this, so the credit issued then won’t help you build your corporate credit. Vendors who will give you credit when you have none reporting now, and report to the business reporting agencies, are very rare. They’re so rare that when you do find them, you may need to buy some items you normally wouldn’t buy from sources you wouldn’t normally buy from. These sources in return provide you MASSIVE benefits including taking a risk in issuing you credit, even though you have no track history, helping you ease cash flow and giving you “trade lines” to help you establish initial business credit.
Once you get credit with vendors, use the credit, and pay the bill, the account is reported to the business reporting agencies. Some vendors report credit weekly, others report monthly, and others may report quarterly. It’s a great idea to ask vendors when and how often they report so you know what to expect.