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Business Credit 101 If you are not yet a business owner or an entrepreneur, but aspire to be one, let me tell you one thing that puts you these kind of people above all the others: you can get two types of credit. You can get a credit as an individual (personal credit) and you can also get credit as the business owner (business credit). This is very favorable indeed for those people who want to expand their existing businesses because they would not have to depend on their personal credit alone. It might seem like they know everything but to tell you the truth, not a lot of entrepreneurs and business owners know the process of building their business credit and how it can take a toll not only on their business but also on their personal lives. In fact, a study showed that less than ten percent of these people know that. Before delving into the details of business credit, let us take a look first on how it differs from personal credit. After that, we will then proceed on discussing on how you can build the former. Your personal credit is established once you acquire a social security number and once you get a job. It could also start once your social security number will be associated with a credit card. This information will be known as your credit profile, all reflected in your credit report. More information will be added to this report if an individual changes their job, changes their address or applies for credit and all of this information is submitted to the credit bureaus by the folks who have issued you credit. As this builds up, your personal credit becomes a reflection of your ability to pay debts. A similar process also happens to some businesses. If you talk about business credit, however, it becomes different altogether. Business credit is also known as trade credit. This happens when a business or company issues another company or business credit. It has been identified to be the biggest single lending source worldwide. The information reflected on a business credit report is also different from a personal credit report. Business credit bureaus will be getting the following information: your business address, the business’ registered name, the federal TIN, which is also termed as the employer’s identification number of EIN (this can be acquired, of course, from the IRS, by the way). Aside from this information, they would also gather intel about your trade or business credit transactions. This information will be the one looked up by >>> some of the top credit building companies, lending companies, creditors, banks and suppliers and will be their basis whether to approve your loan or not or if they do approve it, how much money will they loan you. There are several business credit bureaus that furnish official business credit reports and they are the following: Experian Small Business, Dun & Bradstreet, Business Credit USA and Equifax Business. However, since there is really no requirement for businesses to submit trade credit transaction information to the business credit bureaus, it is not a guarantee that those companies mentioned above will have your business credit information. In fact, those companies may even need to rely on the business owners to submit the information themselves.
The Reason Behind Building up Your Business Credit
While business credit has been fully misunderstood for many years, it has also received an increase in popularity for becoming an integral part of a business. What makes the business credit easily misunderstood, and why do people think that it doesn't matter about having the business credit because it is useless to have it in the first place? These people are just basing their assumptions on false rumors, but they have no idea on how useful and beneficial it is to have a business credit and build upon it.
If you are still in doubt, just think about this: there are many credit reporting agencies worldwide, but the most popular are the big three, namely the Experian, Equifax and the Dun & Bradstreet. They sell business credit reports to those who need them, particularly banks and lenders. Just the first half of the year 2013, there was over 45 million requests of business credit report coming from D & B, while Equifax requested over 35 million. There wasn't data for Experian. While some people may think that there is no reason for business credits and building it up, why do these companies keep on requesting business credit reports? From the reports based on the 2012 NSBA, which is a study, twenty percent of the small business owners were denied from getting business credit. The times these days are really changing, and the importance of business credit differs from today compared to more than ten years ago. They definitely matter now.
Suppliers for business are pulling out business credit on various manufacturers in order to know what they are paying their bills for. The manufacturers get business credit on the suppliers if they sure to be depended upon and to be relied. Distributors and retailers sometimes pull out business credit in order to decide whether or not they are going to issue a trade credit with your business, especially if you are going to purchase their services or products. The business credit report has a very huge influence on the decision the lenders and banks decide when lending credit to you.
It may seem unimportant to you, but whenever you are going to apply for loans or business credit cards, your lender or banks will highly likely deny you of it, because they are unsure of your credit history. How do you know whether or not you have a good credit report? If you have been using your personal finances to fund your business, the chances of getting denied of getting a loan or applying for business credit card is very high.
But what is so important about building credit for your business, or even apply for a business credit? The reason to have a business credit is to help fund your business in the case if you need one. You can also keep track of the expenses you have for your business apart from your personal income. When you have a business credit, you need to monitor its credit score and to have a good one, too, in order to have a good record when banks and lenders are going to pull out your business credit report at the time you need to loan or apply business credit cards.
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