Have you ever used a corporate card for work? Or simply just remembered really cool older folks saying, “I got this,” then whipping out their company card? That’s what today is about, understanding the power of business credit.
There’s a quirk in the law that finds that corporations are entities (citizens). Due to that, they have the same access to credit as we do. But just to let you in on a little secret, because of a term called “limited liability” a company’s debt is limited to the company itself, and not its owners or shareholders. Essentially, the company operates as a shield (or a veil) for the owners. This is important to remember as you read today’s edition of The Dime. Let’s get into the steps though because I’m trying to see you get paid.
First things first, if you’re in business you should contact a lawyer and make it official, whether it’s an LLC or if it’s to set up a larger operation like a C Corporation. Don’t skimp here. Don’t wait. Don’t hustle. Why? Because you need an entity to protect yourself, and your assets. When you finalize the registration of your business you want to make sure you get an Employer Identification Number (EIN) number. This number is basically a social security number for businesses. As soon as you get it, open a bank account under your company’s name and establish a business credit history. As owner of the business, your name being on accounts that establish business credit history actually increase your credit as well.
Trade lines of credit
If you google “Tradelines” or “Trade line of credit” you’ll probably find a plethora of conflicting information. In this particular instance, trade lines of credit means establishing business credit lines for your company. Obtaining credit in the form of hard money loans is difficult for newly created companies because they don’t have a transaction history. This is even more challenging if you’re a new company with low cash flow, so the most efficient way to establish credit is through trade lines of credit.
Usually, these lines don’t give you cash at all, but allow you to purchase supplies for your company and give you a period of time to pay the balance owed. It’s like having a discount credit card at your local store, but for your business.
Some Terms to Know
You’ll also want to get your company’s credit tracked. This can be accomplished by registering your company with Business Credit Reporting Agencies. Some sources to start getting your Company credit tracked are Experian – for business, Equifax – for business, Trans-union – for business and Dun and Bradstreet which is exclusively for businesses. You use them to register for your DUN’s number which plays a very important role in getting access to corporate credit in the future.
Most companies that establish trade lines of credit with businesses start you off with a balance that must be paid back in 30 days or less. This is what called “Net 30”. You can basically run up the purchases you need but IT MUST BE PAID BACK IN 30 DAYS OR LESS. As you continue to build your credit line and it reports positively to the agencies I’ve listed above you’ll be able to apply with other companies for longer “Nets” (Net 60, Net 90).
Businesses that establish “Net” lines of credit:
Uline – You simply apply, add an item to your cart, checkout, open an account and select to be invoiced. This is done instantly. Boom you got your first trade line of credit. ULine tends to start people with a Net 30 account and $250. Also the website allows you to buy a significant amount of items for your business.
Uline sells so many things that we use every day. We’re talking toilet paper, paper towels, mops, dish soap, cardboard boxes etc. If you’re buying these for your business from Target or Walmart, you should actually switch it up and buy it from them (because you’ll be building your Company’s score).
Quill – Whatever you can’t find at ULine you’ll probably find on Quill. Both companies operate the same way, they both allow you to establish a Net 30 line no matter how new your business is.
By establishing those accounts and paying them off for the first 6-8 months of being in business, you’ll be able to move onto establishing credit at larger companies including American Express.
Establishing your Company’s credit and keeping it pristine is essential. You’ll find that not only your personal credit score will be positively affected, but that you’ll also have more credit and confidence to build up a successful business.
Carl H. Joseph-Black, J.D. is the founder of The Dime and runs The Blacklist Social Club. You can contact him anywhere on social media @CJoeBlack