Do you know what your business credit score is? Did you even know you had one? Black Business Owners and entrepreneurs, more than most, need to ensure their business credit is taken seriously and maintained religiously, especially if we want to ever have a chance of closing the wealth gap, creating generational wealth and keeping our businesses thriving and growing, even in difficult times.
According to a study performed by the Federal Reserve Bank of Atlanta and released in 2019 as The Small Business Credit Survey, key findings revealed that more than 50% of Black Business Owners mostly used and depended on their personal credit as the source of their business capital and funding. We can deduce that this is either due to lack of knowledge about business credit and/or lack of an actual business credit score.
If you have been using your personal credit to sustain your business, then this article is definitely for you.
Now to the four questions:
Why Don’t I Want to Use My Personal Credit for My Business?
As proprietor of a small, minority-owned business, learning how NOT to use your personal credit is often challenging when the business is too new to have a credit rating of its own. Aside from the extremely strict regulations from the IRS about intermingling personal and business credit and, yes, even expenses, mixing the two makes accounting extremely difficult. As if that weren’t enough, when you use personal expenses or credit to operate and run your business, you put your entire legacy, even your family, at great financial risk. If your business gets sued or if, for some unfortunate reason, the business fails to become successful, your creditors can come after you for personal liability.
Why is Business Credit Important?
Business credit, when established and used correctly, is a powerful financial tool for Black- owned Businesses. It is used to qualify for funding and financing to take your business to the next level. In addition, this financial tool is a catalyst for forming and building business relationships with vendors who buy from you, who you buy from and, most specifically, those who report your payment history in order to establish and maintain their own credit.
There are two numbers associated with business credit. Your Dun & Bradstreet Paydex Score and Experian Intelliscore Plus, with scores ranging from 1 to 100 (100 being the best ). Your payment history, the age of your business accounts and the ratio of debt to profit all determine your score.
Having a good business credit score affords you more credibility with your creditors – also known as leverage – to negotiate favorably for your business.
The main thing now is the HOW.
How do I Establish Business Credit?
Your business must be a legally registered entity – a Partnership, LLC, LLP, or even a sole proprietorship. Once your business is registered, it is automatically assigned a blank credit profile. This is literally a clean slate.
This step cannot be skipped. You CANNOT build business credit on a business that is not legally established. The simplest structure to establish and maintain is a Sole Proprietorship, but always be sure to seek advice from legal experts to determine which structure is best for you and your business. You can also reach out to the African American Chamber of Commerce or the SBA for assistance.
Once you have done that, then you can begin to work on building out your profile. Remember that the public parts of your business profile are included in the public record. Anyone can view it by looking up your business name.
Here are three simple and quick steps to setting up your business for success and proper credit reporting.
- Set up your Legal Entity
- Get an Employer Identification Number (EIN) from the IRS
- Get a D-U-N-S Number from Dun & Bradstreet
Where Can I See My Business Credit Profile?
There are plenty of places to check your business credit score for FREE. Once you have registered for your D-U-N-S Number, you can check your score through Dun & Bradstreet Credit Signal ®.
Once you are in prime position to use your business credit, keep using it to build your credit over time. Be sure to take out a credit card in your business name and use that card and only that card for all purchases related to your business. Keep building those relationships with vendors and suppliers, but keep an eye on your credit utilization. You don’t want it to go over 30%. That means your credit balance should never be more than 30% of what you owe so, most importantly, monitor it regularly.