How to Build Business Credit Fast in 2023 [Step-by-Step]

okay let's talk about how to build business credit fast because business credit is very different from personal credit and there are specific steps and actions you want to take that will quickly allow you to build your business credit that i want to walk you through today in this video because once you're able to build up your business credit then you will have a much stronger ability to raise capital and lenders will be lining up to give you money [Music] and this can happen in the form of higher credit card limits or lower loan interest rates and many other extended benefits so what i want to do in this video is walk you through what you can do with business credit the steps you need to take in order to build business credit fast and share some tips and stories throughout the way so if all that sounds good to you then please do me a huge favor and like this video for the youtube algorithm so other people like you can learn how to build business credit fast stay tuned [Music] hey there and if you're new welcome to our channel i'm sean with life accounting the accounting company that helps you save on taxes and build more wealth and today it's all about building wealth because one of the things that the rich and wealthy do is they borrow money in order to grow business assets now before we dive in i want you to know that i'm going to put the timestamps for this video somewhere down in the description below so that you can skip to the part that you want to learn the most about however if you are new to business credit then you will get a lot of value from watching this entire video all right let's go ahead and set the scene and talk about number one the difference between business credit and personal credit so personal credit is curated mainly by three major credit reporting agencies and you've probably heard of them right you have equifax experian and transunion and you as an individual will have a separate profile with each borough whereas there are many different credit reporting services that exist for businesses with the largest and the best known being done in bradstreet now personal credit scores are measured and scored completely different than business credit scores in general the three credit reporting bureaus use what is called the fico method which basically summarizes credit scores into a single number so that lenders can see where you stand as well as yourself at a quick glance on the other hand business credit scores have no singular method for reporting and each credit reporting agency will score and report in its own unique way for example business credit scores may be based on stuff like okay what industry you are in how many employees you have and how many years you've been in business and so on but in general the good news is business credit scores have fewer variables than fico scores thus it becomes a lot easier to build and improve business credit than it is for personal credit okay another big difference is that your personal credit is tied to your social security number whereas your business credit is linked to your employer identification number or ein which we'll talk about a little bit more later but basically this is the number that the irs recognizes primarily for tax purposes when it comes to your business okay let's talk about number two what can you do with business credit so i find that generally there are two types of people okay there's the entrepreneurs who desperately want to raise capital and get business credit and then there's the entrepreneurs who don't want anything to do with credit anything to do with debt and they think that they will never have a need for it and i get it because i was the latter right like for the majority of my entrepreneur journey i hated debt but now as i've matured as a business owner i'm a lot more comfortable with it and i understand how leveraging capital can help you achieve faster business growth because business credit can allow you to do things like purchase more inventory or atlanta office or retail space or acquire real estate develop technology and a lot more while at the same time leveraging that capital allows you to maintain a positive cash flow and keep your business operations running smoothly and here's the thing okay even if you don't need business credit today you may just maybe have a need for it in the future for example let's say you have a hot product or a service that's really bumping or an ad campaign that is generating a lot of results but then you ran out of cash to buy stuff like inventory or hire people or run more ads or as another example you could have a grand business idea that you need to raise capital before and you don't want to use all your cash to get started well in that case you will be glad that you at least started establishing business credit early so that you can make your dream a reality much faster so let's go ahead and dig our teeth into this with number three the steps to build business credit fast now all the steps that i'm going to share with you can be done very quickly like if you're serious you can get most of this stuff done within eight hours minus any lag time that you may have to wait for people to review your documents and things of that nature okay so step number one start a business really sean really okay maybe that one is a little obvious but i do want to make an important note which is that you can establish business credit with any business entity whether you're structured as a sole proprietorship loc corporation and so on all right let's go ahead and move on to step number two get an employer identification number so as i mentioned your ein is like an ssn but for your business now you should know as a sole proprietorship you don't need an ein to operate a business but you will need an ein number if you want to establish business credit getting your ein number is free and easy okay all you need to do is go to the irs website make sure you're eligible do a quick i mean very quick application and then submit it and then almost instantly you will receive your business ein and then you can move on to step number three open a business bank account now it's going to be important that you separate your business finances from your personal finances and not just for the sanity of your organization and for yourself but also for your business credit score because credit reporting agencies will be able to clearly see your business finances and be able to report that information on your business credit report plus it's not unusual for lenders to ask for bank account information for your business before proceeding with a loan and they like to see that you have business accounts opened up for at least two years all right with that you can move on to step number four set up your business fundamentals every business should strive to have certain fundamental elements set up like a business address a business phone number an email address your service types and in 2022 even social media profiles now having these fundamentals in place allows you to list your company in business directories like google my business yelp better business bureau and a lot more and look that's really important because some business reporting agencies will literally scrap the information from these directories to help themselves establish their own report on your company okay step number five apply for a business done number as i already mentioned dun and bradstreet is probably the largest business reporting agency in the world national and international suppliers use dun and bradstreet credit scores to evaluate vendors and credit lines so it's a good idea for you to also open a credit file with this agency also having a duns number may help you get approved when you're applying for stuff like government contracts or government grants as well as sba loans but it can take up to 30 days to get your duns numbers so it's really important if you want to establish business credit fast that you don't wait and you go ahead and proceed with that step okay step number six is to get a business credit card one big thing that personal credit has in common with business credit is that you can build up your score when you have stuff like a strong payment history of paying on time reasonable debt to asset ratios a couple years of credit history and so on and so one of the things you want to do when you start your business is to apply for a business credit card and then use that business credit card to start paying for small business expenses so that you start establishing some type of business credit history now i have an entire video breaking down how i personally use business credit cards along with some great recommendations so i'll link to that video at the end of this one so you can check that out after you finish moving on to step number seven i have borrow from the right lenders before you make a final decision on the lender that you're going to work with you want to make sure that they are actually going to report the transaction in the loan to a business credit agency ideally they're going to be reporting to some of the bigger agencies that we talked about like dun and bradstreet experian or equifax now most of the largest financial institutions and banks routinely report to these agencies but i know some entrepreneurs would search hard to find low rates or local banks so it wouldn't hurt to ask this qualifying question of do you report to any of the major business credit bureaus as a matter of fact we do okay awesome sign me up okay step number eight don't overdo it because if you want to build business credit fast then simply raising the most money possible isn't ideal because guess what it can completely throw off your debt to asset ratio which is a financial measurement that takes your total debt divided by your total assets and the closer your debt to asset ratio is to one means the company has more debt than assets and that can actually hurt your credit score and make lenders a little bit more wary of lending to you now of course if getting capital is more important than your credit then that shouldn't be much of a concern but it's just something that you want to be aware of okay step number nine is to monitor your credit now this doesn't directly help you build your business credit but it can reinforce the actions and helping you to actually grow in the right direction okay a good practice is to check your business credit report at least every six months which is usually when you start to see a bump in your overall scores while at the same time if you find an error then you can go ahead and contact that specific credit agency and explain that what they have is incorrect and request changes to be made because look even the slightest error in your credit report can impact you in a major way okay moving on to the fourth part of this video let's talk about business credit and debt risk one big downside of business credit that we have to talk about is around legal protections because with personal credit there are what is called consumer credit laws that allow you as the consumer to challenge anything on your report and have incorrect information removed by the credit agency however there are no such laws in place for business credit agencies so if there is a mistake on your business credit report you would have to hope that the agency corrects their mistake because they are not obligated to by law which brings me to another downside and potential risk which is your personal credit score can be impacted by your business credit score because oftentimes especially when you have no business credit established you must do what is called a personal guarantee which basically means that you are personally responsible for repaying the business credit cards or business loans even if the business fails and if that personal guarantee kicks in then that would impact your personal credit score as well and that issuer is able to attack your personal assets even if you have an llc or a limited liability company which some people mistakenly thinks protects them and without this guarantee then most companies will not approve your application for a credit card or business loan because the risk of non-payment is too high for example here is a clause in the platinum card for american express that says by submitting this application you as an individual and the authorizing officer of the company are agreeing to be jointly and severely liable with the company for all charges to the account so be on the lookout for this because if you're applying online or working with someone who isn't detailed and going over all the stuff with you then you could be agreeing to this without even realizing it now anytime i talk about debt i always have to make this important note which is taking on debt for business growth is risky okay look business is hard and most new businesses fail and they are still left on the hook with loans they have to pay back and yes okay while the rich and the wealthy love leveraging debt and love leveraging capital the one thing you may want to consider is that these rich and wealthy people are also seasoned entrepreneurs or executives meaning that they have acquired strong abilities to be able to see what investments may succeed what investments may fail through years if not decades of experience so my approach to taking on debt is i only want to seek debt once i have started to gain traction in or i have extreme confidence like i am 99 sure that i have identified an opportunity that will provide a return on investment which is why i am such a big fan of starting a service company or starting out small before taking on a lot of debt or taking on too much risk alright so i hope you enjoyed this video and my perspective on things coming up next i have two more videos that talk about business and credit that you may enjoy as well so make sure you check those out if you haven't already and i'll see you over there

Channel: LYFE Accounting

Views: 78,543

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Id: 44ZenZ7BSek

Length: 14min 27sec (867 seconds)

Published: Fri Apr 15 2022