CLICK HERE to watch on YouTube
Did you know that according to Entrepreneur Magazine, over 90% of small business owners know nothing about using business credit, and end up using their personal Social Security number and using up their entire life savings without really knowing how to take advantage of business credit? In this video, I will show you the four-step process you need to follow in order to stop using your Social Security number and start using your Employer Identification Number, also known as EIN.
Hey everybody. Welcome to my channel. I am your host, Leo Landaverde, business coach and outsource CFO, helping you scale your business. If you’re ready to grow your business to seven figures and beyond while creating the financial freedom and the lifestyle you want, then don’t forget to hit the bell and subscribe to this channel, so you will be notified every time new content comes out.
Building your business credit is actually not hard to do. You just need to know the proper steps to follow to get started. Step number one, building credit business, building your business credibility. The perception that lenders, vendors, and creditors have of your business credit it’s critical to your ability to build a strong business credit. Before applying for business credit, a business must ensure it meets this, the credibility for the lenders.
So the first thing you need to know is, you got to stop using your sole proprietorship, anything using your Social Security number. Instead, you need to get a legal entity. You can build business credit with almost any corporate entity type. And if you really want to separate your business credit from personal credit, you must use a separate legal entity. And examples are, you can use an S corporation, a C corporation. The S stands for small, which is the most common one. You can use an LLC. LLC is a great legal entity anywhere that will shield you, protect you from any personal liability.
You can use a general partnership, et cetera. A professional corporation if you’re in the attorney or accounting business. Whether you have employees or not, your business entity must have a federal tax ID, hence that is your business Social Security number. It’s called the federal tax ID also known as your Employer Identification Number. Just like you have a Social Security number, your business has an EIN.
Your tax ID number is used to open bank accounts and to build your business credit profile. So the first thing you do once you get a corporate legal entity, it will become a separate entity from you. You can take the incorporation papers and everything that comes from the federal filings, and you can take it to a bank and then you can open up a bank account or savings account for your business under your corporate legal entity. That is step number one.
Step number two, getting your business credit reports. Business credit reports are offered by Experian, Dun & Bradstreet, and Equifax. You will first want to get a copy of your business credit reports to see what is being reported before you even start your credit building for your business. You won’t need to get reports with all the three agencies, but you should have at least one monitoring set up with Dun & Bradstreet or possibly Experian.
You will pay anywhere from 19 to a $100 to get your business credit report. I would strongly recommend Dun & Bradstreet. And on a side note, if you’re going to be serious about building business credit, you need to establish a Dun & Bradstreet number, it’s called a D&B number. It becomes very important if you want to do business with the government or publicly traded companies, they will look you up as a company, where the D&B is the equivalent of the FICO. You will have a D&B score.
Step number three, getting vendor credit. So despite what you may think, big retailers like Home Depot or Office Depot, et cetera, they won’t just roll … Give you credit right away, just because you have a brand new, shiny brand new entity. They will want established credit. But the problem is, if nobody’s willing to give you a started credit, how are you going to get started credit with anywhere? So you have to start somewhere.
What I recommend is that you might start getting business credit with starter vendors. Starter vendors are the ones who will give you initial credit, even if you have no credit profile for your business, no score, no trade lines. Most stores like a Staples will not give you any initial started credit, so don’t even mind applying. But there are vendors that will be happy to extend you some credit. Some of those may be Best Buy. Smaller vendors, local vendors in your neighborhood might be able to give you a started credit. On the personal side of things, what do most people do? They go with a Macy’s, the J. C. Penney’s, that’s how you get your initial personal credit.
The same is true for your business credit. You go to those who don’t mind giving you that kind of credit. Some of the vendor credit may be companies that you work with on a regular basis. If you’re using this companies as cost of goods, if you have to buy supplies from them. So say for instance you were a pool service provider and you clean pools, and then you need to get your supplies from Leslie’s Pool Supplies, that’s just one example, you would ask for vendor credit from Leslie’s, and make sure that they are reporting your transaction and your history and your good paying habits to Experian and Dun & Bradstreet. That’s how you start.
Step number four, getting revolving credit. After five payment experiences, I establish using vendor accounts, obtaining revolving accounts as the next step. Revolving accounts are cards a business owner can use that where you’re not required to pay the full advance, the full balance every month. Revolving account approvals will be coming from stores. For instance you get Visa, MasterCard, American Express, type cards associated with stores. Will not approve you personally, but may instead approve your business, because what this revolving, the issuers will look, they will pull your business credit profile and they will see those transactions, that history that you have established with your vendor, your smaller vendors.
So it kind of creates a domino effect. If they are looking at your credit and see that you’re using it wisely with some of your vendors, they may take a chance and give you a revolving line of credit. And then you move from there. Now the cool thing about business credit versus personal credit, that in business credit you get larger limits. So it’s not uncommon to have a business line of credit for 10,000, 20,000, 30,000. Usually they start at 10,000 versus on a personal side you’ll be lucky if you get a $2,000 line of credit. Because your business is supposed to be able to generate revenue automatically. The credit banks they will look at that and they will give you just a larger line of credit. Hopefully that information is helpful to you.
Please comment below and let me know if this information was useful to you about using your Employer Identification Number. Also, if you want to join a community of like-minded successful entrepreneurs just like you, then join our Facebook group at the link below where I share tips, tactics, and strategies, of how my clients are growing their businesses to seven figures and beyond.
CLICK HERE to watch on YouTube