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Establishing Business Credit as a New Owner
The cost to start a small business can be significant – only four percent of respondents in a recent survey said they spent less than $50,000, while 27% paid $50,00 to $175,00.1 Seventy-one percent paid $175,001 to $1 million, and 13% paid more than $1 million.2
These expenses can be crippling, especially for younger firms. According to the Federal Reserve, 66% of small business owners and 83% of firms operating less than five years used personal assets to finance business expenses.3
The statistics make sense when you consider that most new owners don’t have a business credit history. Banks and credit card issuers have lending requirements and review a borrower's credit history to make decisions, so using savings or a personal credit card is usually just easier. However, it’s wise to build business credit, which often helps secure better loan terms, including lower interest rates.
Clients like government agencies and financial institutions may also require vendors to have an established credit history. Organizations of this type tend to select partners with a strong business credit score, which suggests the company is financially stable and will be able to consistently provide the products or services needed. Insurance companies often factor in business credit scores as well. The scores help them assess your business’ financial wellness and the risk they are assuming if they insure you. It’s also used to determine the premiums you’ll pay.
Building business credit isn’t as complicated as it might seem.
It takes time but establishing business credit isn’t as hard as you might think. These five steps will help you get off to a good start.
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Request a D-U-N-S® number.
Dun & Bradstreet (D&B) designed the Data Universal Numbering System (DUNS) to provide businesses with unique, nine-digit identifying numbers – much like a personal social security number. You can enter the following information on the company’s site to receive a D-U-N-S number free of charge.- Legal business name
- Owner name, partner and/or senior leadership
- Business location – file separately for each site
- Phone number
- Year of creation
- Primary industry
- Legal structure
- Number of employees
If your business is registered with the state or you have a business license, D&B may have already assigned you a D-U-N-S number. You can check the business directory on the company’s site to see if you’re listed. If a D-U-N-S is assigned, you ‘ll be able to verify your identity and claim the number.
Business credit reporting can be inconsistent. Before applying, ask whether the lender will report your account to one of the credit bureaus.
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Apply for a business credit card.
You will have a “thin” credit file until you open an account that is reported to at least one of the three business credit bureaus — D&B, Equifax and Experian. Applying for and using a business credit card or secured card will help to establish business credit. Initially, you may only qualify for a low limit. However, if you pay bills on time, you may be eligible for a future limit increase. All business credit card issuers don’t report to the three credit bureaus, so ask before you apply. -
Open a vendor tradeline.
Some companies, like Uline, Quill and Home Depot, offer “net 30” or other similar lines of credit for small businesses to purchase office supplies, safety equipment, etc. The vendors report payments on these accounts to the credit bureaus. So, within a few months, you’ll begin to build business credit.
You can also submit vendors and suppliers with whom you have a positive payment history to D&B as trade references. The D&B team can also use the payment records to calculate a PAYDEX® score. This is a proprietary, dollar-weighted performance indicator ranging from one to 1000. Higher scores indicate D&B's confidence in a business’ likelihood of paying bills on time. -
Pay utilities and other bills to build credit.
Utility and wireless payments don’t typically appear on credit reports. However, services like eCredable help businesses and individuals report these payments to the credit bureaus. The company offers two levels of service. When you sign up for eCredable, you can link an unlimited number of eligible accounts, including internet, mobile phones and utilities, for which the company downloads and reports payments. Businesses can also request on-demand verification and reports for other paid monthly or quarterly expenses, such as accounting, marketing and property rentals. It’s a good option for businesses that are interested in establishing business credit without taking on debt. -
Apply for a business line of credit.
A business line of credit is like a credit card but, rather than purchasing goods and services, it’s used to access cash. You can use a line of credit to buy inventory, compensate employees or cover shortages while waiting for customer payments. Without an established credit history, you might be unable to qualify for a standalone line of credit. It’s a good idea to meet with a banker at the financial institution where you maintain business or personal checking accounts.
Carefully manage your business credit once it’s established.
There are good reasons for establishing business credit early on. For example, you may want to purchase inventory or new equipment, or need to tap a line of credit to supplement cash flow during slow periods.
Always pay your bills on time and use credit responsibly. Regularly monitor your credit history and score to ensure there are no reported inaccuracies. Carefully managing your credit ensures you’ll have access to the funds your business needs in the future.
If you have questions about how to establish business credit, we can help. For more information, call 1-888-SYNOVUS (1-888-796-6887) or stop by one of our local branches.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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