Building Business Credit for a New Business: Achieving a PAYDEX Score of 90 or Higher
Establishing business credit is crucial for the growth and sustainability of your new business. A strong business credit profile not only helps secure loans and lines of credit but also enhances your company's reputation with suppliers and customers. One of the more respected business credit scores is the PAYDEX score from Dun & Bradstreet (D&B), which ranges from 0 to 100. A score of 80 or higher is considered good, and a score of 90 or higher is excellent. Here's a step-by-step guide to building business credit and achieving a high PAYDEX score.
1. Establish Your Business Entity
Before you can start building business credit, you need to ensure your business is properly set up. This includes:
2. Start with Vendor Tradelines
Vendor tradelines are the foundation of your business credit profile. These are accounts with suppliers that extend credit terms (e.g., Net 30, Net 60) to your business. Initially, you'll want to focus on vendors that report to D&B. Here are some vendors known for extending credit to new businesses:
3. Build Your Initial Credit Profile
Once you have established accounts with vendors, make small purchases and pay off the invoices early or on time. Timely payments are crucial as D&B's PAYDEX score is heavily influenced by payment history.
4. Progress to Retail and Fleet Credit
After successfully building a few months of positive payment history with vendor tradelines, you can start applying for retail and fleet credit. These accounts are a step up from vendor credit and include:
5. Apply for Business Credit Cards
With a solid payment history established, you can start applying for business credit cards. These cards are essential for larger expenses and further building your credit profile. Examples include:
6. Add Tech, Software, and IT-Related Tradelines
In addition to general and retail tradelines, you can establish credit with vendors specific to tech, software, and IT needs. These accounts help diversify your credit profile:
7. Personal Guarantees for Tradelines
While establishing business credit, you may encounter situations where a personal guarantee (PG) is requested. A personal guarantee means you, as the business owner, are personally liable for the debt if the business cannot pay it. This can be a double-edged sword:
Appropriate Situations for Personal Guarantees:
Avoiding Personal Guarantees:
8. Truth vs. Myth of the $50K No-Doc Loan
A common myth in business credit is the availability of $50,000 "no-doc" loans, which supposedly require no documentation. In reality:
Truth: Some lenders offer low-documentation or streamlined application processes for established businesses with strong credit profiles.
Myth: New businesses or those with limited credit history rarely qualify for significant no-doc loans. Lenders typically require some form of financial documentation, credit history, or personal guarantee.
9. SBA Loans and Other Programs for New Businesses
The Small Business Administration (SBA) offers several loan programs beneficial for new businesses:
10. Additional Programs for New Businesses
In addition to SBA loans, there are other programs available for new businesses looking to build credit:
11. Monitor and Maintain Your PAYDEX Score
Regularly monitor your business credit reports from D&B. Ensure all your credit accounts are being reported accurately. You can use tools like D&B's CreditSignal to keep track of changes to your PAYDEX score.
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Establishing business credit is crucial for the growth and sustainability of your new business. A strong business credit profile not only helps secure loans and lines of credit but also enhances your company's reputation with suppliers and customers. One of the more respected business credit scores is the PAYDEX score from Dun & Bradstreet (D&B), which ranges from 0 to 100. A score of 80 or higher is considered good, and a score of 90 or higher is excellent. Here's a step-by-step guide to building business credit and achieving a high PAYDEX score.
1. Establish Your Business Entity
Before you can start building business credit, you need to ensure your business is properly set up. This includes:
- Incorporate Your Business: Choose the right business structure, such as an LLC or corporation.
- Obtain an EIN: Get an Employer Identification Number (EIN) from the IRS.
- Open a Business Bank Account: Separate your personal and business finances by opening a business bank account.
- Register with D&B: Get a D-U-N-S Number from Dun & Bradstreet, which is necessary for generating a PAYDEX score.
2. Start with Vendor Tradelines
Vendor tradelines are the foundation of your business credit profile. These are accounts with suppliers that extend credit terms (e.g., Net 30, Net 60) to your business. Initially, you'll want to focus on vendors that report to D&B. Here are some vendors known for extending credit to new businesses:
- Uline: Offers shipping, industrial, and packaging materials. They typically offer Net 30 terms.
- Grainger: Provides industrial supplies and equipment. They offer Net 30 terms and report to D&B.
- Quill: Supplies office products and offers Net 30 terms to new businesses.
- Summa Office Supplies: Offers various office products with Net 30 terms, and they report to D&B.
- Crown Office Supplies: Similar to Quill and Summa, offering Net 30 terms.
- Staples: Offers office supplies and furniture with Net 30 terms.
- Office Depot: Similar to Staples, providing Net 30 terms for office essentials.
- Costco Business Credit: Provides revolving credit options for business purchases.
- Sam’s Club Business Credit: Similar to Costco, offering revolving credit for business needs.
3. Build Your Initial Credit Profile
Once you have established accounts with vendors, make small purchases and pay off the invoices early or on time. Timely payments are crucial as D&B's PAYDEX score is heavily influenced by payment history.
4. Progress to Retail and Fleet Credit
After successfully building a few months of positive payment history with vendor tradelines, you can start applying for retail and fleet credit. These accounts are a step up from vendor credit and include:
- Amazon Business Credit: Offers revolving credit for business purchases.
- Home Depot ProXtra Card: Useful for businesses in construction or renovation.
- Shell Small Business Card: A fleet card for fuel and vehicle maintenance expenses.
- Lowe's Business Account: Similar to Home Depot, ideal for construction-related purchases.
- Staples: Offers business credit accounts for office supplies and technology.
- Office Depot: Provides credit lines for office products and services.
- Best Buy Business Advantage: Offers credit lines for tech and electronics purchases.
5. Apply for Business Credit Cards
With a solid payment history established, you can start applying for business credit cards. These cards are essential for larger expenses and further building your credit profile. Examples include:
- Capital One Spark Classic for Business: Designed for businesses with fair credit.
- American Express Blue Business Cash: Offers cash back and requires good credit.
- Chase Ink Business Cash: Great for earning cash back on office supplies and utilities.
6. Add Tech, Software, and IT-Related Tradelines
In addition to general and retail tradelines, you can establish credit with vendors specific to tech, software, and IT needs. These accounts help diversify your credit profile:
- Dell Business Credit: Offers credit lines for purchasing computers, servers, and other tech equipment.
- Apple Business Financing: Provides financing options for Apple products and services.
- HP Business Credit: Similar to Dell, offering credit for HP products and services.
- Newegg Business: Supplies tech products and offers Net 30 terms for business accounts.
- CDW: Provides IT solutions and credit terms for technology purchases.
- Tech Data: Offers credit lines for a wide range of IT products and services.
7. Personal Guarantees for Tradelines
While establishing business credit, you may encounter situations where a personal guarantee (PG) is requested. A personal guarantee means you, as the business owner, are personally liable for the debt if the business cannot pay it. This can be a double-edged sword:
Appropriate Situations for Personal Guarantees:
- New Businesses: When your business has no credit history, suppliers and creditors may require a PG.
- Larger Credit Lines: For significant purchases or higher credit limits, a PG may be necessary to secure the terms.
- High-Risk Ventures: If your business is in a high-risk industry, a PG might be required.
Avoiding Personal Guarantees:
- Build Strong Vendor Relationships: Establishing a history of timely payments with vendors can sometimes allow you to negotiate away from requiring a PG.
- Improve Business Credit Score: As your business credit improves, you can apply for credit lines that do not require a PG.
8. Truth vs. Myth of the $50K No-Doc Loan
A common myth in business credit is the availability of $50,000 "no-doc" loans, which supposedly require no documentation. In reality:
Truth: Some lenders offer low-documentation or streamlined application processes for established businesses with strong credit profiles.
Myth: New businesses or those with limited credit history rarely qualify for significant no-doc loans. Lenders typically require some form of financial documentation, credit history, or personal guarantee.
9. SBA Loans and Other Programs for New Businesses
The Small Business Administration (SBA) offers several loan programs beneficial for new businesses:
- SBA 7(a) Loan Program: Provides financial assistance for a wide range of business needs, including working capital, expansion, and equipment purchases. This program is accessible to startups with good personal credit and a solid business plan.
- SBA Microloans: Offers small, short-term loans of up to $50,000 to small businesses and certain non-profit childcare centers. These loans can be used for working capital, inventory, supplies, furniture, fixtures, and machinery.
- SBA Community Advantage Loans: Designed to meet the needs of businesses in underserved markets, providing loans up to $250,000.
- SBA 504 Loan Program: Provides long-term, fixed-rate financing for major assets such as land and buildings.
10. Additional Programs for New Businesses
In addition to SBA loans, there are other programs available for new businesses looking to build credit:
- Local Economic Development Programs: Many states and municipalities offer grants, low-interest loans, and other incentives to promote local business development.
- Business Grants: Various organizations and government agencies provide grants to startups in specific industries or demographics, such as women-owned businesses or minority-owned businesses.
- Crowdfunding: Platforms like Kickstarter and Indiegogo allow you to raise funds from the public, which can be a way to generate capital without taking on debt.
11. Monitor and Maintain Your PAYDEX Score
Regularly monitor your business credit reports from D&B. Ensure all your credit accounts are being reported accurately. You can use tools like D&B's CreditSignal to keep track of changes to your PAYDEX score.
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