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Business Credit

Discussion in 'General Entrepreneur Discussion' started by phlgirl, Oct 25, 2007.

  1. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    First, I want to thank ATW for this link. It got me started on what appears to be a fairly long road of building business credit.

    I made a new thread for this because I think it is critical for any new business starting out. Right up there with setting up the legal entity, you should begin building the business credit. This is something I neglected to do and I am wishing I had known/taken the time to learn what I am learning now. I have 2 companies - one which has been in operation 5 years (gasp) and the other just shy of 2. Neither one has any credit whatsoever. Everything is in my own (or partners) names.

    Huge mistake.....as we all know, one very important factor in many business ventures is the advantage of leveraging OPM. The ability to utilize OPM frees up your own capital for other ventures (or safekeeping!). Our company is now looking to secure lines of credit in the business name, so that we can be more agressive/do more deals and I am sure a positive credit rating really would have helped.

    So figure I will attempt to save someone else the mistake.

    Appears to be a fairly straightforward process, which requires the following, at a minimum:


    1. Establish a Dun & Bradstreet Number for your company www.dnb.com - it will be this organization, along with Experian who track credit for your company. This process is free (although you can pay to make things move faster)

    2. Establish at least 5 credit relationships (i have read it takes 5 to get a score)


    Just like personal credit, not too many people want to loan to a business without any record. It seems the best place to start is with smaller vendors - think Staples, OfficeMax, Home Depot, Texaco, Lowes, FedEx, etc. (many can be applied for online)

    Many will require a personal guarentee and then, after 6 months or so, will release the personal guarentee, if you request.

    Again, just like personal credit, it's all about time - the earlier you start, the better!! Starting a new business can be very hectic and this might be the last thing on your mind, when you are juggling a million other things but just think about the power this can provide. Established credit for a company can act like an entire separate person - with access to more and more funding (if you treat it right) - it can make or break your Growth potential.

    I am sure there are lots of people on this forum who have experience in this topic. Please, feel free to add...... I, for one, am listening. :)
     
    kwerner, LagunaLauren, sulli and 2 others like this.
  2. jimculler
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    jimculler New Contributor

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    A lot of the people posting on Creditboards are advocates of getting your Duns number the free way. I totally understand where they are coming from, but chose to pay to get easier and quicker access as you had outlined in your previous post.

    Unfortunately my Duns paydex score is not going to help me avoid personal guarantees until we have 2+ years. I wish there was a way around that, but other than high cost unsecured credit lines (6-10 points) I have found no way to get it done without a PG.

    Unless of course you are talking about small things like Staples, Sams Club, DHL etc....
     
  3. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Very true, Jim - good point. For the banks, the magic number is 2 years - every single banker I have spoken with (12-15) wants two years of history. Our larger, more active, real estate investment company will hit the 2 year mark in approximately 3 months.

    It seems like this credit process takes, at the very least, 6 months to build, as they want a history, not 2 months of Staples activity. So, I am just kicking myself now for not having paid attention to this earlier. I have to beleive that if I went forward with a great credit record, in addition to our solid business model/track record, it would have been just one more item in our favor (particularly with how cautious bankers seem to be on RE these days).

    Not to say that we won't be able to get something and work up from there..... I just that I hate the fact that it COULD have been more, which would have allowed us to grow even faster. O well, no use crying over the past... learn and move on.... but for anyone who just started out, learn from my mistake and get to work on the business credit. :)

    Oh... and one final note - An American Express charge card is not a 'credit' card, it's a 'charge' card and has no impact to your credit (unless it goes unpaid for 60 days or more). We have had an AA charge card in the business name (secured by PG) for the past 2 years, to which we have charged 10's of thousands of dollars per month and due to my ignorance, this did absolutely nothing for us.
     
  4. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Update:

    Spoke with several representatives at D&B as well as multiple 'Business Credit Building' companies.

    Jim - I think I now see why you opted for the more expensive option with D&B. I have learned that in order to get a score and not just a company number, from D&B, you must purchase what they call the 'Credit Builder' option - $549. D&B starts you off, with a random score, based on the number of employees you have and you are responsible for building from there.

    Another option is to hire a 3rd party company, who will work with you and D&B to build a solid credit score for your company. I spoke with 4 different companies today, which offer such a service and of the ones I talked to, their pricing ranged from $1100 - 1650. Some claimed they could get you to 80, others as much as 90. Some offered guarentees, others did not. Finally, some claimed they could accomplish such a goal in 90 days, others as much as 9 months.

    The key, which each of these companies is offering is the advantage of savings in time. I have to think it is possible (although I do not know for sure) to build business credit, without any of these services (D&B included) but it might take you a full 2 years to get to a solid score of 80+

    As I stated earlier, we are now less than 6 months from hitting the 2 year mark with our most active company. At this point, we want to be able to immediately access funding when this time comes. Therefore, we are opting to pay a third party company, to assist us in building the credit. The savings we will experience in having our own funding source (as opposed to using hard money) will outweigh the cost of this program in less than a month.

    So, like I always say..... it's all about ROI.

    As long as the information is not confidential, I will be happy to share exactly what steps they take me through. Perhaps those of you who have more time will be able to execute the steps without the added cost.
     
  5. Peter2
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    Peter2 Fastane Legend. RIP.

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    You can get a 80+ DNB score within 3-4 months by yourself without paying anyone and you will have to spend no more than 2 hours of your time.
     
  6. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    Agreed Peter2.

    The DnB people are HIGH PRESSURE SALES PEOPLE.... Be aware of that as you begin your process of building biz. credit. They are there to upsell you and make you think it is impossible to do it without them. NOT TRUE.

    You CAN DO IT W/OUT them. Don't believe all that high pressure stuff you get when you talk to them.
     
    phlgirl likes this.
  7. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Really? That would be fabulous. Any suggestions as to where I might find guidance on this topic? I spent the better part of a day this week, calling every small 'merchant' I could come up with (Staples, Shell, Texaco, Fedex, etc.) and none of them were willing to extend our business a small line, to get started.

    I also called D&B (multiple times) and tried to list existing business references with them. They told me (over and over) that I would first have to purchase the $549 option, to establish a starting place. You are right, I found them to be some of the worst sales people I have ever come across.

    I also went to the bookstore today, to purchase a book on this specific subject. They did not have anything in stock but offered to order for me. I was planning to puchase online instead.

    What am I missing?

    Thanks for your feedback.
     
  8. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    the link you posted at the very beginning of the thread is the best resource I have found. The people on that board know how to get it done.

    *any* biz with a phone number listed in 411 can get a $750 card from Staples. Is your biz phone # listed?
     
  9. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    No, our number is not listed. We own quite a few properties and, for that reason, we do our best to remain 'unlisted'. Not looking to have tenants showing up at the house (all partners work from home). Our business address mailing address is to a UPS location.

    I wonder how I could link a phone number to the business, without having it here at the house? Perhaps, this is the important of having a second entity.
     
  10. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    staples, etc. won't approve you unless you have a listed #. It is how they verify that you are "real". Even a secondary line that you never answer and don't have voice mail would work.
     
  11. santiago
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    santiago Contributor

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    +1 I have 3 businesses listed with DNB with various companies reporting and paydexes 80+ and I didn't pay DNB a cent to get them listed. I highly suggest you not pay them anything. creditboards.com is a great resource to figure out how to get this done.

    By the way the 2 year thing isn't necessarily true, in my experience. For example, I had the good fortune of inc'ing a biz, following steps (get phone number, etc),applying for small stuff (staples, etc). Within 9 months or so, I had a business with over 100k in unsecured credit lines (NO Personal guarantees) and various other useful lines (50k at dell for instance). It CAN be done, just takes some diligence and a little luck.

    Good luck! :)
     
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  12. santiago
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    santiago Contributor

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    On this one, phone companies can setup business phone numbers that print to the white pages (i.e are listed, the important part) but simply forward to another number for you or go straight to a voice mail box. Mine cost something like $15 a month/line for that service. By the way, use this phone number as the contact number on any applications you have. It is good idea to separate phone numbers from your house phone anyway..
     
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  13. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks, ATW. Appreciate the input. I will have to look into whether or not I can list a number, without an address, and if, without an address, merchants like Staples, etc. would be satisfied.

    A phone number....pretty funny to me that this is the missing link (particularly after spending all that time filling out applications). That's what we get for running our company on cells phones :)

    Can you (or anyone else) say what is typically takes to get an 80+ score with D&B? Is it just a matter of obtaining the 5 merchant accounts, to which everyone seems to refer?

    I will continue to research on that creditboards site. Sorry for the onslaught of questions.... just determined to get moving on this, so that we are in the best position possible.

    Thanks again.
     
  14. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    if you use your cell and don't mind having that listed in the white pages, you can list that # as a "foreign" listing for about $10 for the year. You can even choose to "list" it in a different town if you like.
     
  15. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Thanks to all for the responses! I have yet to sign up for any service, so I will first give this a go, on my own. That said, looks like you all might have saved me at least $1000 (really love this forum, MJ)!!

    I will have to buy each of you a drink someday!

    Will keep you posted.
     
  16. Peter2
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    Peter2 Fastane Legend. RIP.

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    I also posted this in your other thread. If your goal is to obtain LOC's, your business credit report has very little importance. Most banks will only look at your personal credit report, and every bank will require a personal guarantee as well.
     
  17. RE Taipan
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    RE Taipan Contributor

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    PHL...I agree with Peter...as for my experiences in getting the LOCs for the business, they looked at both the D/B and Experian Business (I know they pulled them b/c they asked me questions about some discepencies in the info showing on each) but clearly were basing their decision more on my personal reports than anything else.

    NOTE: My LOCs are all stated income, no doc applications. I understood clearly that the LOCs would max lower than the full doc apps, but not passing tax returns over to a bank was worth keeping the confidentiality. One LOC grantor asked for docs....I demurred advising them that doing so would invalidate the whole reason I was incorp'd in Nevada...for the privacy. I thought for sure that would kill the deal...but alas, they ultimately approved it.

    Also....of note, once you get the acceptance letter/call, I would not be shy about asking them to increase the LOC limit right then and there (or call them if the approval comes via letter). An approval is an approval. In 2 of my instances, they came in at amounts that were lower than I was willing to accept.

    One called to advise me of the approval and I purposely responded in an unexcited manner. The bank person asked why I sounded disappointed. I explained that I was expecting a higher amount and that doing so would give me more flexibility in using the LOC. She put me on hold and came back with an extra $30K, provided I took $15K of it "now" into my account. I agreed as long as there was no min use time. She confirmed no. I took the $15K in my account and the next day I was at the bank re-transferring the $15K to my LOC account....interest was a couple of bucks...for an additional $30K.
     
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  18. Bilgefisher
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    Bilgefisher Bronze Contributor Read Millionaire Fastlane

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    Very interesting thread indeed. I just got turned down for a line of credit today with a business account at wells fargo. When starting a company, it seems your personal credit also needs to be good. (at least until your business gets going) My credit is 720, but my partners is 580.

    Is it possible to setup a business account on one name with a decent credit score, then add someone else's name to account after your credit is secured.
     
  19. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Update:

    Limited progress this week:

    • Applied for a free D&B number online (am told this will take up to 30 days to process)
    • Changed my office (home) fax number to be listed in the name of the business and attached to the company EIN number
    • Applied and was approved for a $750 revolving account, with Staples
    • Changed our cellular service to be assigned to the company EIN number, as opposed to personal
    • Applied for a business credit card (to replace our American Express charge card)
    I would like to have at least 5 revolving accounts, within the next few weeks. Once I get the DUNS number, I need to figure out how to monitor the score.

    My end goal is to build, over time, so that I have several hundred thousand dollars available to each company (2), thus decreasing the use of hard money and saving the business thousands in points fees.
     
  20. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Week 2 Progress:
    • Got our DnB # - saw that our company is now listed online, so I called to get number. Am told it will take 4-6 additional weeks for mail
    • Applied and was approved for $250 line with Office Depot. Made first purchase online
    • Applied for Corporate account with Barnes & Noble
    Read a few articles about business credit this week and learned that one way to bump your score is to pay in advance of the invoice. In the business world, although it is fine to just pay on time, it seems you get extra points for being an 'anticipating payer'. I typically work on the 'Just In Time' payment approach - so that our business keeps our money working for us as long as possible - but, for the next few months, I will make an exception on these business accounts.

    Also learned that you can apply online at DnB for an e-update account. This allows you to logon and view all the information on your file and make any corrections. Note: have been warned by folks on the creditboards site to never attempt to make more than one update per day or your account will be locked (confirmed with DnB manager).

    Finding that the business credit process has just as many quirks as the personal credit world. Oh joy!
     
  21. randallg99
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    randallg99 Bronze Contributor

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    my opinion of DnB is extremely low... they are unecessary unless you are dealing with suppliers for services and inventory and their value decreases further the more global our economy becomes.

    reality is that big money is not lent based upon DnB scores
     
  22. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    It has now been about 5 months since I started this process. I logged on to D&B this morning and found that our company now has a Paydex Score of 80. :)

    The score is out of a possible 100 and 80 is defined as Prompt Payer.

    I didn't pay a dime. So thanks again to everyone who assisted in steering me in the right direction for this Business Credit issue!!

    It may not be a determining factor in getting our company large business loans but it certainly cannot hurt. I am pleased with it.
     
  23. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    Congrats!! :banana::banana:

    Now that you have done it, you could build some self corps - fully established with credit and then sell them!!!

    Any young upstarts out there that want to do that? :fastlane::fastlane:
     
  24. MrPink
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    MrPink Contributor

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    phlgirl,

    If you were starting in real estate, how would you have set this up to avoid the issue? Would it makes sense to possibly setup a LLC to establish credit even if it didn't have current income?

    I was planning on setting up a LLC in the future, but after reading through this post made think sooner maybe better.

    Mr. Pink
     
  25. imirza
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    imirza Contributor

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    This may sound like a silly question but in order to get a Paydex score you do need to actually make purchases from the 5 vendors that you sign up for business credit with right ?

    I got my D&B number a few weeks back and I am starting to apply for business credit with vendors. When applying for business credit for example through Staples, are they going to give you a credit card ? Or do you buy now and they send you an invoice later ?
    I'm also trying to figure out which 5 vendors to apply for credit through. I don't really have much use for , Staples, Lowes, Fedex, Office Depot etc. I need to figure out what I need to buy. I know I could use credit at the pump. So would I be applying for a gas card through Texaco ?

    I wish I could get business credit through a restaurant. :smxB: That would be easy to get my Paydex score established.

    Its a little challenging coming up with vendors that I am actually going to buy products from.
     

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