Business credit scores have a major impact on companies. Aside from having an effect in gaining new business and partnerships, they play a big role when you’re applying for business financing, as lenders look at a company’s business credit file when making their decisions. A report that shows a positive payment history with several vendors is proof that the applicant is financially responsible and is therefore creditworthy, increasing its chance of being approved for financing. A poor score, meanwhile, is a red flag.
Not sure how to get business credit for your company? Read on.
The first step to take when trying to establish your business credit score is to make sure that your business is legitimate and will be seen as legitimate by the top credit ratings companies.
Set up your business as a legal entity (such as an S Corporation or an LLC).
Get an Employer Identification Number (EIN) and a DUNS number from Dun & Bradstreet.
Use a business email address instead of a free email account such as Gmail.
Create a website and establish your online presence.
Open a business bank account.
Have a physical location. (Vendors prefer businesses that have a physical address instead of a P.O. Box)
When you’ve got all these pieces in place, you’ll be ready to start your business credit building program. An easy way to build business credit is through vendor credit lines. This option is available even to new businesses or to those that are not making a lot of money yet.
Simply put, vendor credit is when vendors allow you to “buy now, pay later.” Vendor credit can help you build your company’s credit score which can help you get additional funding in the future if the needed arises.
You can get a net 30 account, which means that you have 30 days from the date of purchase of the goods and services to pay the full amount. Other terms are also available, such as net-15 or net-60, depending on the vendors. However, not all vendor credit is created equal. The way a vendor operates can have a big impact on your credit score (or none at all), so it’s important to know what to look for before signing with any vendor that you’re hoping will improve your credit score.
There are around half a million vendors in the United States that offer credit to businesses, but only a fraction of these (less than 6000) report to business credit bureaus.
One costly mistake to avoid is using vendors that do not report payment information to business credit bureaus. Even if you do business with these vendors for years and even if they are great in all other ways, they will not be of help build your business credit.
Another factor you should take note of is the business credit bureau(s) the vendor reports to. It is better to choose vendors that report to the three big bureaus, namely Dun & Bradstreet, Experian, and Equifax.
Different vendors report to business credit bureaus on different frequencies. Some report monthly while some report quarterly or even yearly. The report frequency will affect the length of time needed to build your business credit file. If you want to build business credit in 30 days, go for vendors that report monthly.
Be aware that many vendors report the balance owed as your high credit limit, instead of the actual credit limit you have been approved for. For example, even if your company has been approved for a $1000 credit line and you purchase products worth only $100, your file might show $100 as your high credit, instead of $1000. This difference can affect the credit limit recommendation that the business credit bureaus will provide in your file.
Below are 5 vendors that will help you get started.
Grainger is one of the easiest vendor accounts to acquire and signing up for an account is quick and free. The company reports to Dun & Bradstreet and sells a wide range of items, including hardware tools, plumbing supplies, janitorial products, and safety equipment. Due to their wide variety of products, you are likely to find something that your company needs.
To qualify, you will need a business license, EIN, and a DUNS number.
With Grainger, it is easy to get approval for credit below $1000, even for new businesses that do not have much credit history. For credit above $1000, you will need trade and bank references.
This is another account that is easy to get and useful in building a credit history. Like Grainger, Uline also offers a wide range of products that most businesses need, such as office supplies and furniture, shipping boxes, and food service supplies.
Uline reports to Dun & Bradstreet and Experian. To get vendor credit, you will need a DUNS number, two references, and a bank reference. Shop for the items you need then use the net-30 option when checking out. A successful checkout means you have been approved. If you have a limited credit history, you may have to prepay for your first few orders in order to be approved for net-30 payment terms.
Quill sells office, cleaning, and packaging supplies and also reports to Dun & Bradstreet. You will need to fill out a profile when opening an account. You will be asked what industry the business belongs to and what year the company was established, but don’t worry, because even new businesses can get approved.
Similar to the first two vendors, Quill also offers a huge inventory of merchandise. Just add your chosen items to your cart then choose “order now and pay later” upon checkout. Quill takes 1-2 hours to review your application for net-30 terms if you shop during business hours, or up to 1 business day if you shop outside business hours.
If you have limited or no credit history, you will be asked to pre-pay for your orders for 90 days. Quill will then review your account and set up net-30 terms.
Staples is a retailer of office supplies and reports to Dun & Bradstreet. Smaller businesses with limited credit history can usually get a $1000 credit line with net-30 terms.
This IT company reports to Experian and CreditSafe and provides an online credit application for companies.
It’s important to understand that when you start building business credit your credit history will be very young, and it is crucial that you pay all the accounts at or before the payment deadline. Once you have several vendor accounts reporting to the big business credit bureaus, you can now start getting credit from other providers such as Office Depot, Conoco, BP, Visa, and MasterCard.
Once you have started to build your credit score, it will be much easier for you to obtain a business line of credit and other types loans such as SBA loan or short term loans for buying equipment, hiring staff, increasing inventory, paying invoices, and more.