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Karla Dennis, EA, CEO of MST & The Award Winning Tax Accounting Firm, Karla Dennis and Associates Inc.— specializes in tax planning.
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Imagine the following common scenario. A business owner started a company, worked hard, and suddenly realized they needed funding to take their company to the next level. Then, when that same new business owner tries to get that funding, they’re told, “Oh, I need a personal guarantee.” This means that personal credit needs to be put into the equation. If you have personal credit, you may not even need to create this link, but creditors will demand it anyway and business owners will find themselves back at the drawing board.
So what’s next?
establish a credit profile
First, it’s important to understand that building business credit is different from building personal credit. Business owners need to establish a credit profile for their business. And that credit profile is established by confirming your business has an Employer Identification Number (EIN) and a Dun & Bradstreet account.
A Dun & Bradstreet Account is a way for business owners to register their company and link their credit profile to a “Dun Number”. This is similar to how an individual’s credit profile is linked to an individual’s social security number. When a business owner creates her Dun profile, she does so by providing financial information about her business. This information includes items that require some degree of proper accounting, such as income statements and balance sheets.
Consider Income and Assets
Basically, business owners need to know how much they are making, and if they don’t know the exact amount, they can “predict it.” If a business owner calculates the trajectory of sales as $100,000, he should make that projection on the income statement before estimating expenses. This will give you a net profit. An example would be a sheet with income, followed by a sheet with expenses such as phone bills, marketing, utilities, rent, etc.
When it comes to balance sheets, business owners need to think about what assets they have. You probably have cell phones, computers, and any number of other work-related equipment and materials. These items are examples of company assets and give concreteness to your business. In addition, a business owner’s creation of a profile with actual or projected financial information on her Dun & Bradstreet is a key point for the business to raise the necessary funding.
trade line
Next, the business owner should get credit in the name of the business. This can be done with a tradeline. A trade line can be done in places as basic as getting a credit card at a local office supply store like Office Depot or Office Max. It must be a credit card in your business name, like an Amazon credit card. Amount doesn’t matter. It doesn’t matter if it’s $1,000 or $500. It should be based on what the business can afford to pay back consistently and on time. Regardless of the amount, once opened, the line of credit is your company’s and EIN’s first line of credit. This is important for the Dun profile as the company must list its creditors. The ability to list creditors such as Office Depot and Amazon, or other vendors you use and pay over time, allows you to provide more information across your profile.
Businesses can also ask vendors, such as accountants, to give them a letter stating that they are the client and that they will pay on time, similar to a reference letter. Starting a business can sometimes require a little out-of-the-box thinking. Paying vendors on time is very important. This is very important. Because business owners now want these vendors to provide their reference letters. The more information a business owner can add to her Dun & Bradstreet profile, the more it will update and increase her credit profile.
One of the reasons for creating a business is to separate business and personal assets. The only way someone can get out of the equation is building a business and matching credit profiles is the starting point.
It won’t happen anytime soon, but taking these steps will help you build a strong foundation and take your business to the next level. Once you have a credit profile for your business and need to get a line of credit or apply to the Small Business Administration (SBA) which offers microloans for small businesses starting small businesses, usually some You will be prompted for a Dun number as of application.
Additionally, business owners may even be able to find funding through lenders like American Express partner Kabbage. You don’t necessarily have to look for a large bank. You can often find lenders that specialize in small business loans.
Entrepreneurs and business owners, it’s important to build your business credibility and create that dan number. Get your business off the ground in order to have additional capital to grow your business, hire more employees and do more marketing. After all, as a business owner, it’s all about growing and putting profits in your pocket. And to do that, we need to have additional capital on hand from time to time.
The information provided here is not investment, tax, or financial advice. Please consult a qualified professional for advice regarding your specific situation.
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