Okay.
How do you establish business credit?
Well a business is credit is generally going to be separate from that of the individual.
Sole proprietors and partners often times, the entity is disregarded.
That is the entity is treated as no different than the owners of the business.
But when you have a separate business entity and a limited liability company or a form
of corporation then in that case you're going to likely want to build credit for the business
because once the business develops to a certain point you no longer have to personally guarantee
loans or provide capital yourself.
That is the entity itself will be able to borrow funds or establish a line of credit
et cetera.
And in order to receive a competitive rate of interest on any lines of credit et cetera
the business needs a credit profile.
So just like an individual the business has to build it's credit profile to demonstrate
that it's not a risk.
So to the extent that the business can demonstrate to any lender that it is not credit (inaudible
00:01:08) the interest rate on whatever line of credit or that arrangement is going to
be lower.
So to start with you look at your business entity and you have to – you'll file your
business entity with the state.
And you'll have it organized.
So it is separately from yourself and we go through in other videos the governance requirements
and the setup requirements for different types of entities.
Next, you're going to want to open some form of business credit account.
Now individuals have traditionally used Experian, Equifax, TransUnion.
These type of credit rating agencies.
While business have traditionally used Dun & Bradstreet or D&B , okay?
But now Equifax is being in TransUnion also offer business services.
So you can create a business – a profile with these entities as well.
And often times it's easier for third parties to check your credit via these entities.
So it's probably a good idea to open up a credit file with all of them done in Bradstreet,
Equifax, Experian and TransUnion so you can get your credit profile going.
When you setup your business entity you're going to receive a Tax Identification Number.
Again we go over that in a different video.
But you paying your taxes and your tax return information is again provides the backdrop
for what amount of risk a lender would assume is involved in it's spending credit to the
individual.
So getting your tax ID's and keeping up adequately with your business records will be important
when you're seeking any extension of credit.
You're going to establish a bank account, okay?
So that funds coming in a bank – in and out of the bank account are easily reported.
These transactions again can be reported to the credit rating agencies.
You're going to get a business credit card, okay?
That is one of you're first extensions of credit for the business.
And you may have to sign a personal guarantee upfront or the owners and plural may have
to sign a personal guarantee to get that loan of credit.
But that credit card but as the business is credit grows it maybe possible to get that
credit card or line of – or other line of credit without signing a personal guarantee,
okay?
Now lastly any form outside of our credit card of unsecured loan that the business can
establish.
Lenders would generally provide loans based on some form of security, right? the ability
to post equipment or other collateral that could be reposed or attached in the event
that the business doesn’t pay.
Well at some point it maybe an option to get an unsecured line of credit or rotating line
of credit.
If the business establishes this, makes timely payments, never goes into default on anything
just like an individual the business's credit score will rise.
And as the credit score rises the risk of default on the extension of credit goes down
and thereby makes credit more available and easier to obtain.
And then the terms are easier to manage for the business so ultimately more credit will
be available.
And that’s how you build your credit profile as a business, okay?
Just like with an individual, it's establishing accounts, trying to demonstrate that the business
will and does make timely payments and covers it's obligations in establishing sufficient
obligations to demonstrate that the business can manage and balance these debts or accounts.
Okay.
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