What is business credit?
Business credit provides potential trading partners – like suppliers and creditors - with the information they need to determine whether or not you are a company they want to do business with. Your business credit “score” – not unlike a personal credit score - will demonstrate how you have paid your credit obligations and if you are a good credit risk. Your business credit “profile” contains important information about your company such as how long you’ve been in business; who the principals are, revenues, business type, size and location; and any legal filings such as tax liens, judgments or bankruptcies.
Why is business credit important?
Business credit can be one of the most important attributes your new or existing business ever has. It can be a lifeline, providing you with access to the cash and/or resources you need to sustain and grow, today or in the future. Business credit can also insulate you from personal liability in the event your business should ever get in trouble. Because your business credit is not tied to you personally through your Social Security Number, your business is solely liable for its financial responsibilities. Establishing a business credit score can be vitally important. Most business owners will need business credit and/or trading partners to build or grow their business. It isn’t unusual for customers and prospects, including potential investors, to inspect your business credit to assess the financial stability of your company. A poor credit history, or no business profile at all, could make your business look like a high risk endeavor.
How is business credit different than personal credit?
Business credit is a rating your company’s history of paying its financial obligations, and is based on credit history established under the business’ tax ID number (Employer Identification Number-EIN), NOT the business owner’s Social Security Number. Think of your EIN as the Social Security Number for your business. There are many reasons why you should keep your personal credit and your business credit completely separate. A common mistake many new or small business owners make is funding their business through personal lines of credit or personal credit cards. This behavior could put them in financial risk if the business happens to get in trouble. For example, the owner of a bakery who uses his personal credit to buy supplies and pay the rent could be personally liable when he hasn’t paid in three months and creditors come knocking on their door.
How is business credit used?
When your company applies for a line of credit, the creditor will check one or more of your business credit reports and their associated scores. A creditor can be a supplier (like an office supply company) or a lender (like a bank, credit union or credit card company). There are a variety of “business credit bureaus” that collect and manage information about your company. D&B, Equifax, Experian, and Ansonia Credit are examples of some of the more well-known repositories of business credit information.
What kind of information is contained in a business credit file?
Information such as how long you have been in business, how many locations you have, who the principals of the company are, your revenues, how many employees you have, the industry you operate in and other similar information is contained in your business credit files. In addition, how you pay your “trade credit” accounts is also reported by your trade partners. Reporting to a business credit bureau is optional, so you can’t always be sure that any or all of your trade partners will report your business credit information.
How do I start building a business credit score?
Many computer companies will extend you a line of business credit. Some office supply companies will extend credit terms to you and then report your monthly payment to the business credit bureaus. Make sure you set up accounts in the name of the business. If you set up the account in your personal name and social security number, it will get reported to the consumer credit bureaus which won’t help you build a business credit score. You can also leverage your personal credit to set up lines of credit in the name or your business. Just be aware that this could severely harm your personal credit score if your business is not able to make timely payments. It also does nothing to protect your personal assets in the even to of an issue with your business.
How can eCredable help me build a business credit score?
Most of the business credit bureaus will accept your payments for monthly expenses like your business rent or lease, utility payments and telecom payments. Most of these companies do not report your monthly payments to the business credit bureaus, so you don’t get the benefit of paying these bills on time. eCredable allows you to have this information reported to one or more of the business credit bureaus which will enhance your business credit report(s) and score(s).
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