You Can Build Awesome Business Credit -- Part 4

This series has examined the basics of developing business credit without using your personal credit -- everything from company formation and opening your first business account to establishing five initial trade accounts and your business credit file with your Dun & Bradstreet (D&B) D-U-N-S number to securing corporate credit cards . In this final column of the series I will examine small loans and lines of credit, and I’ll provide information about other credit reporting agencies that produce business credit files.

As you enter your eleventh month in business, it’s time to visit your friendly banker again. You want to apply for a small loan -- $1,000 to $3,000 -- to pay for some service or product such as office equipment. You don’t even have to need the loan. Remember, your goal is to build your business credit history. You can secure the loan and deposit it in a savings account in a different bank. Spending it immediately (or at all) is not required.

With your excellent Paydex score and sufficient cash flow, which will be obvious to your bank, your business should be easily approved for a loan. Ask for 90-day terms. Repay the loan, in full, in 60 days. Wait a month. Apply for another loan for a slightly larger amount -- $3,000 to $5,000, for example. Again, ask for 90-day terms and repay in 60 days. You have now proven that you can be trusted to borrow and repay loans on time.

In business credit, there is the 5 -- 3 -- 2 rule. For a solid business credit record to be established, a company needs to have five active trade acounts, three business credit cards, and two small loans paid in full.

During your company’s 18th month, apply for a line of credit. Again, visit the bank you’ve established a relationship with. It’s best to open a line of credit when you don’t need it. Think of it as your rainy-day, emergency fund. By tapping into this line of credit for your largest expenses and ones you cannot pay off immediately, you can continue to pay off your trade accounts and credit card balances in full each month and your Paydex score will be as high as possible.

Now that you’ve built an impeccable repayment history with every account you’ve opened, presuming your cash flow has remained strong, you should be approved for a business line of credit with no problem.

In addition to D&B, there are three other credit reporting agencies supplying business credit reports. They have their own unique scoring systems, but because these bureaus do not make detailed credit-building requirements easily accessible to small business owners, it's difficult to know how to decifer the scores or improve them. After your first six months in business and after your Paydex score has been created, you will want to be sure your company is also listed with the other credit reporting agencies.

Because far more companies report business credit information to D&B than to the other credit bureaus, some accounts will probably be missing from your other credit reports. If some of your trade accounts do not report to a credit agency, there is no way to add the missing account to your history. However, it’s important to check the accuracy of all information in your files every six months and make any necessary corrections. As with personal credit reports, mistakes happen.

Equifax no longer gives small business owners access to their credit histories (or at least I couldn’t find such access even after spending more than 30 minutes searching its Web site and calling customer service). Here are links to the other agencies: Credit.Net and Experian. Unlike D&B, these credit bureaus will charge you to see a copy of your business credit report.

Build your business credit as you would anything else: Plan your strategy; take daily steps forward; and over time, you will achieve your goal.