We get this question a lot. Should we be building business credit for our company? Let’s talk about that. First, I want to tell you that I do think most people should build their companies business credit profile because, after all, is there any reason why you would not want good business credit for your company? Also, keep in mind that we are a company that focuses on working capital and not specifically business credit building. There’s a big difference.
The question is, what do you think building business credit will do for you?
Over the years we have found that people are confused and mis-understand “why” you want to build business credit. This blog is written for small business owners who are doing less than $10 million in annual revenue all the way down to startup firms with no revenue.
Many companies who promote and sell business credit building programs will tell you things that simply are not true about building your business credit. When you build your business credit you are primarily setting up and building your Dun & Bradstreet (D & B) business credit report. It does involve some building of the Experian business credit and, to some degree, your Equifax business credit also. With D & B you are largely focusing on what we call vendor credit or trade credit. In other words you’ll be opening Net 30 accounts at places like Quill, Grainger, Gemplers, Uline, etc. Then you’ll move on to revolving accounts with vendors like Staples, Exxon, Office Depot, BP, Dell, etc. This process will create “tradelines” that report to D & B and then create a Paydex score and a rating.
This is all a good idea and should be done if you plan on your business being around for the long term. If you aren’t sure about this or don’t know if you’ll be around for the long-term then in your mind you already doubt your longevity and that’s something that’s tough enough that if you aren’t determined to be around then you probably won’t be…but, of course, that’s a topic for another day. Building business credit is a wise thing to do but it will come with an expense and it will take time. It’s not the quick fix to help you get small business financing like a small business loan in a couple months. Talk to business bankers who work with small businesses seeking loans and you’ll be hard-pressed to find one who has ever had a loan denied because the business didn’t have a good business credit report. However, it does serve a purpose.
Here’s the result of our process that started over 2 years ago for us. We now have several lines of credit for $25,000 or more with each of the following companies: Staples, Dell, Home Depot, Wal-Mart, Chevron, and Wright Express (gas card). We also have several other smaller open lines of credit at places like Office Depot, Shell, BP, Lowes, Quill, and Sams Club. We never personally guaranteed any of these and none of them ever looked at my personal credit report in order to grant these credit lines. They were solely based on our business credit. This is great but you’ll also notice that none of these are visa, mc, etc. so I can only use my Home Depot line of credit at Home Depot. It’s not working capital or an unsecured business line of credit that I can use however I want.
This doesn’t mean it’s not great but it’s also not “as great” as working capital in the form of a visa credit card or a bank-draft line of credit because my Home Depot card is very limited in comparison. I can use it with one company verses tens of thousands of companies who accept visa.
Another way we used our excellent business credit report was we recently purchased a phone system for our business. They did not look at my personal credit and based our equipment lease solely off our business credit. That’s pretty cool. So it’s a good idea to build business credit and it’s definitely something that has value but don’t make the mistake of thinking that this cool strategy is more than this or that it’s something it’s not.
In my opinion every serious business owner should be building their business credit because, after all, why wouldn’t you want your business to have good credit. Consider it a cost of doing business and after a while you’ll reap the benefits and be glad you did it!