Wow! As we all know now, these past few weeks were an unprecedented period in financial history. While big business and Wall Street are getting a “bailout”, millions of small businesses are going to face much adversity in the coming months with little to no assistance from the federal government. The Small Business Administration reported that the number of small business loans given out in the 2008 fiscal year were down by 30% from the previous year. The current depreciation in home values has a decided impact on what existing collateral is worth, therefore many small business owners who rely on their homes as collateral to back traditional business loans or a business line of credit now have a reduced playing field.

With the diminishing availability of business credit, many small business owners may find they need to revert to their savings or personal credit options to keep their business afloat. Yet, as we’ve mentioned previously here, reduced resources and deep indebtedness do not make a good candidate for business credit. Prevailing inflation and rising prices also contribute to a scarcity of capital and resources that means everyone’s dollar is already stretched to the point of ripping. Obviously, small businesses are going to feel the pressure from rising prices as well and one way to prepare for what is predicted to be extremely tight times is to make sound business credit choices now.

It is indeed a time to be cautious and prudent in all financial matters. You might consider this a period to focus on your business credit health instead of expansion. Although this is a phase of financial uncertainty and nebulousness in the world, it could be just the opportunity to make some concrete advances in your business creditworthiness. You might also consider this time to research public, private and non-profit organizations that offer support to small businesses in distress. There are many forms of aid available from a variety of sources and in the next post we will discuss researching different forms of business credit assistance and what options these agencies can offer.

Preparing for bad financial times ahead may seem like such a drag, but it is time to batten down the hatches on your business credit. There is much to be learned from the current financial crisis, but one thing to focus on is that using borrowed money unwisely is detrimental to more than just your business, it has far-reaching damaging financial effects that are incalculable. Don’t be like those nincompoops on Wall Street!

To-day we are going to get neck-deep into the mawkish and maudlin mush of awareness and emotions. Incongruous as “feelings” may seem within the construct of a business-to-business credit discussion, this is a salient subject that affects a person’s relationship with finances and often goes by as unmentioned as a missed zipper. In most advice regarding the financial subculture of b2b credit, you will be offered divine bullet-pointed lists, replete and crystalline in methods and manners of improving and building business credit, but here is where I am going to differ, because I am going to wonder aloud why you are here. You are probably here because of, Horrors!, the credit problems of yesteryear. Now the feelings and awareness part is gently folded into our business2business credit batter with a spoonful of sugar!

Doubt is an engulfing emotion and starting a business is a precarious time. Guilt and shame over past financial mistakes are debilitating emotions as well, and yet the way we are referring to the emotions in this context is fiscal. Past financial mistakes occurred because of actions or, most probably, non-actions; and so it would be most helpful to concentrate the guilt and shame on the conduct and not the mark on the record. It is not as though the numbers caused the problem. In the same vein, any doubts you have regarding gaining business to business credit should be eased by resolving to make good choices and take the correct actions with your business from now on. Instead of fretting over numbers, you should be skilled enough to recognize problems and concerns from the past and have them rectified before applying for any kind of loan or line of b2b credit.

You should be discriminating enough to see your own business’ strengths and weaknesses. When you are capable of criticizing your business and finances objectively, you will also have the ability to extinguish your doubt. Your ability to manage the resources of your business is a quality that cannot be gleaned from any blog or article. You must become a b2b credit autodidact. Collect the business-to-business credit experience to advance your managerial capacity. Your motivation is critical to building your enterprise and building business to business credit.

If you are having trouble mustering the enthusiasm to learn about financial matters, I always find a great deal of excitement comes from considering that capital in a business environment can be the inception of not just anything merely attainable, but anything imaginable. So buck up and learn what it takes to be confident in your own financial dealings. Become fluent in the jargon that rates and grades you and, ultimately, determines your worth.

When you search for information on business credit and business to business credit on the internet, you will be bombarded with offers by agents who purport to be able to build your business’ credit in just a week or two. Be very wary of this kind of offer because not only are these offers false and usually a part of some kind of scam, they may also use illegal tactics which can hurt your business in the future.

Often, these agents will offer to perform most of the steps we have outlined here in this blog; from forming your LLC to registering your company with a business credit reporting agency. Arguably, these are steps that you can take yourself and it is merely a matter of how much time you have to devote to such tasks versus how much you are willing to pay to outsource those tasks to another party. As for building business credit, the agents may claim to have an inside track on how the system works, but, in all honesty, with a little research on your part you could be on the same inside track and be saving your business its much needed cash flow.

It is important to be cautious and also maintain realistic expectations of what these agents can do for you. There is nothing wrong with paying for advice and counseling on business credit, but be vigilant if an agent offers to remove any and all negative aspects from your business credit report. This means that they are offering to remove accurate and true negative marks and I’m afraid that kind of action is illegal. Also, many of the business credit reporting agencies rely on information gleaned from the past six months of activity, so it would benefit you to concentrate on your current activities and payments than to erase true mistakes in the past, especially since doing so would be illegal.

When seeking business credit counseling be sure to ask what you can expect from such a service and ask specific questions. If the agent offers business credit possibilities that seem unrealistic to you, they are probably unattainable and a ploy to lure you into paying costly fees and expenses. There is no Business Credit Fairy Godmother who can wave her wand and make the past disappear. If there were such a being, she would probably more resemble The Godfather and follow similarly illegal practices. Find a business credit counselor who offers you practical and reasonable expectations and don’t just nod and smile! Heed their advice.

Now we will take a look at the various business credit reporting agencies. Although Dun & Bradstreet, or D&B, is inarguably the most prominent business credit reporting agency and many claim it is the only one that matters, it is still not the only one out there. In fact, your line of business may dictate which business credit reporting agency is best for your company and it is advantageous to do the research in your field to determine which agency is used in your particular business arena.

D&B
http://www.dnb.com/us/
D&B is the largest business credit reporting agency in the world with more than 100 million companies worldwide listed using their Data Universal Numbering System, or DUNS number. 
Telephone companies, insurance companies, banks, credit institutions, and manufacturing and wholesale businesses are their main clients. D&B uses a DUNS Rating generated from financial statements and a Paydex score from payment history.

ExperianBusiness
http://www.experian.com/business/bcr.html
Experian is one of the three largest consumer credit reporting agencies in the country. Its business credit reporting branch lists more than 14 million businesses, generates a Intelliscore from payment history, and uses data provided by vendors alone.

Cortera
http://www.cortera.com/
Formerly known as eCredit, the recently acquired and freshly named Cortera professes to list every public and private company in the United States. Cortera partners with some of the other major agencies to broaden its database and uses the Cortera Credit Pulse generated from payment history. Transportation and telephone companies, banks, credit institutions, and manufacturing and wholesale businesses are their main clients.

Equifax Business
http://www.equifax.com/commercial/en_us
Also one of the top three consumer credit reporting agencies, Equifax began in the business2business credit reporting realm. Equifax generates a number of different and specific scores based  on payment history, lease and banking payment history, public records and personal credit data. Banks, insurance companies, healthcare providers, utilities, retailers, and government agencies are their main clients.

This list is merely a smattering of what is out there. Acquiring and learning about your business credit report from a few of these agencies will help you understand the data that is collected about your company and how you can adjust your business actions to improve your score. If you take building business credit seriously, make use of the information your business credit report offers. Learning how to decipher your own business credit report is quite like gazing into a foggy mirror as it clears, it can give you a forthright and judicious look your business and its blemishes. Perhaps this will not be the most pleasant experience, but it will be a rational and prudent one.

On the other side of the coin, keep in mind that once you learn to read your own business credit report, you can use this skill in your own decisions regarding potential customers, associates and partnerships. I’m sure the thought of slogging through piles of business credit reports is frightfully dismal, but it is a skill that will serve you well.

Let us now discuss the Equal Credit Opportunity Act (ECOA) and what you can do if you feel you have been treated unfairly by a lender.  The Equal Credit Opportunity Act does not guarantee that you will be approved for any loan you apply for, it simply stipulates that your race, sex, religion, national origin, marital status or age are not factors in the decision to grant you a loan and that it is illegal for a lender to inquire about these points. Also, lenders are not allowed to ask if income is gained in part or in whole from a public assistance program and you are protected even if you have exercised your rights under the Consumer Credit Protection Act in the past.

Business credit and trade credit, or business to business credit, are included in the Equal Credit Opportunity Act. Accordingly, creditors are neither allowed to deny credit to business credit applicants for the preceding reasons, nor deter applicants from applying for credit. When a lender refuses credit they must not only provide the applicant with the precise explanation for denial, but also inform the applicant that they have the right to know the explanation if the creditor is asked in sixty days. The lender is not allowed to give elusive or ambiguous answers when asked about declining an application. Be direct with your questions and ask for a clear-cut and detailed account of what they feel you lack.

Instead of bemoaning your business loan rejection, take this time to assess where you stand as a business credit borrower. Since ECOA already requires this dissemination of knowledge, this is an opportunity to use the information to improve your business credit standing. The lender will tell you specifically where you fall short according to their scoring system, allowing you to remedy the situation and apply again at a later date. Name another human relationship, besides parole, that would grant such a courtesy!  

As always, when applying for business credit your credit score in the lender’s system is based on your business credit report. The Fair Credit Reporting Act stipulates that the lender provide you with all pertinent information of the credit reporting agency they used for your application. Begin communication with the credit reporting agency within sixty days of application denial and your report is free. Make a comparison between the reasons why you were not approved for business credit and what is said on your business credit report and you should be able to recognize what would make your business a poor candidate for a business credit line. If there are errors on the business credit report, begin at once to rectify these blunders with the business credit reporting agency.

Remember that the Equal Credit Opportunity Act also applies to the terms of credit and credit rates. When you are approved for business credit, you should inquire if you are receiving the best rates and terms and what you can do to improve your standing in these categories as well.

In the previous post we discussed how tracking and assessing both personal and business credit will help you decide when the time is ripe to apply for a business credit line.  If you are struggling to improve either your personal or business credit report it is equally worthwhile to learn how credit scoring systems work and especially valuable to learn about your forms of recourse under the Equal Credit Opportunity Act if you believe you have been dealt with unfairly by a lender.

A credit score uses data gathered from your, or your business’, credit background. This information may include how many and what type of credit accounts held, how long those accounts have been open, amount of debt, collection activity, and payment background. Creditors use a credit model to correlate your data statistically with equivalent borrowers to calculate if you are a worthy risk. Generally, points are bestowed for elements that forecast a reliable borrower. Credit reporting agencies will give you a score and that score is based on their particular statistical model, methods and sample. Accordingly, your score will come in different forms and numbers and may vary slightly depending on the agency you choose to provide your business credit report.

Let’s begin by looking at payment history, how this component affects your credit score and how to mitigate the negative issues.

Bankruptcy, collections and late payments are unambiguous, glaring problems. Clearly this kind of activity in your credit history is a red flag to lenders and will have an adverse effect on your credit score. Little can be done to retroactively undo bankruptcy and late payments, but there is recourse for accounts sent to collections. First, make sure any negative information is correct. There is a different process to fix unverified collection accounts. Next, you must deal with the collection accounts by dealing directly with the corresponding collection agency.

The horrid and harrowing prospect of deliberation with a collection agency should be lulled by the anticipation of a solid business credit report and a renewed ability to apply for business to business credit with aplomb.

All communication with the collection agency should be in writing. Ideally you want to come to an arrangement in which the collection agency not only removes the entry from your credit report, but also arranges to have the original creditor list the account as “Paid as Agreed” in exchange for debt settlement. Your only bargaining chip during this parley is your payment. However, this can be a tricky negotiation because although you do not want to pay until you have come to the terms discussed above, by contacting the collection agency you are signaling that you have the funds available. You’ll want to keep the discussion and requests logical and amiable because the agency does have recourse to litigate if the mediation deteriorates. Litigation is usually a last resort, depending on the amount of the debt.  Alternatively, you could wait the seven years for the listing to be removed from your report, but the debt itself is not absolved rendering this solution rather useless.

Building business credit and repairing personal credit will seem a grisly task when collection agencies are involved. Remember that the health of your business credit report is your motivation and the plum will be growing your business with the power of b2b credit. 

We have covered the basics of beginning to establish business credit with a separate business bank account, a company credit card and vendor or equipment credit accounts. Since we have also discussed the time it may take to have a solid business credit report with a major business credit reporting agency worthy of relying on when you apply for business to business credit or a business line of credit, it is constructive to note how this in-between-time can be spent wisely.

During this time you can evaluate what lenders and business entities will be looking for in your business credit application. Consider how you meet these expectations and pat yourself on the back! Now, scrutinize and list how you do not meet these requirements and you now have a plan of attack for the next year or so. Undoubtedly this will seem an onerous task, but the rewards of a sound financial strategy are limitless.

As a business owner applying for a business line of credit at a traditional lending institution you will generally be asked to supply a personal financial statement and personal tax returns. The company must usually provide a statement of purpose, a business plan (or parts thereof), business tax returns or year end financial statements, a schedule of business debt, and accounts payable/receivable information. The preceding is merely a brief list of what to expect and each lender may have separate specific requirements. Likewise, when applying for b2b credit you will find that each entity has varying criteria. Remember that the lender needs to see that your business is not a risk; and the idea behind supplying this mass of information is to prove to them that you will repay the loan or line of credit. Review a few business line of credit or business2business credit applications to see where you stand in advance.

So, you’ve listed your inadequacies when it comes to the business credit application process and in order to tackle them it may help to compartmentalize. As you have separated your personal and business finances, accordingly you should consider how prospective lenders will view your separate personal and business financial histories. Ideally your business financial history this early on will be beyond reproach; if it is not, be critical about missteps in the recent past and do all you can to avoid future lapses. Personal financial history can be troubling for many who have made poor fiscal choices in their youth, nevertheless a business owner’s personal financial history will often come into play in the business credit world. On personal credit matters it should suffice to say that even paying your personal bills on time will only help your venture and your pursuit to build business credit.

Perhaps it seems jejune to advise merely taking stock in business and personal financial situations and simply arranging remedies to any problem; however this appraisal is worthwhile and a valuable measurement to help assess and track how close your business is to securing business to business credit or a business line of credit.

Establishing business credit can take up to two years. Two years may seem a lengthy amount of time when considering how long it will take to get your business running and off the ground, but this starting period can be a productive time to build commercial credit.

One of many problems a new business may face is a lack of funding or capital to keep a business running during unforeseen slow times or erratic cash flow periods. By beginning to establish business credit early on, you will be poised to navigate the financial channels necessary to overcome financial obstacles should they come your way. Business to business credit can also provide the crucial temporary funding a business may need as a stopgap during a rough patch.

B2b credit is also known as trade credit or commercial credit and is a contract in which one business provides or supplies another business with goods or services with an arrangement to be paid at a later date. The old, trite saying, “Money makes the world go ’round” should be refined to “Business2business credit makes the world go ’round” since this particular form of financing is the critical capital that most businesses rely on for their day-to-day operations. Remember, if your goal is to build business credit, it is of ultimate importance that the vendors you choose report to the major business credit reporting agencies.

The business to business credit agreement you arrange will vary from vendor to vendor. Generally, vendors will offer terms of Net 30, meaning that full payment is expected in 30 days after completion of order and there is a possibility of a percentage discount if payment is made in the first week. Again, contract arrangements can differ and can go to Net 60, 90 or 120. Clearly it is essential to become fully acquainted and comfortable with the terms of any business contract, but it becomes evermore so when the outcome of an agreement is linked so closely to your business credit report and your business’ financial standing. Ask questions if you don’t understand any of the terms and become familiar with how the terms affect the cost of the good or service with accrued interest.

It will take time to establish a business relationship with a vendor; and you will most likely have to begin that relationship by making payments in advance or COD. Take some time to get to know your vendor’s representative. Ask them what it will take on your part to get the terms you want more quickly. Vendors looking for long-term business relationships will better understand your need for business2business credit and may be willing to negotiate. Your representative is also the appropriate person to ask about how often the vendor reports to business credit agencies and to which agencies they report.

Going forward it is a fine idea to have your business credit report on hand and a completed credit application for your business ready and in and electronic format so that you can easily send this information ahead when applying for business to business credit.

The need to establish business to business credit and a business credit line essentially begins when you start your business. New business owners should first incorporate or form a Limited Liability Company (LLC) and request a Federal Employer Identification Number (EIN) from the IRS. It is also recommended that the business have a real location and business phone number that is always associated with the business, especially to the business credit reporting agency. Be sure you have acquired all the permits and licenses required in your county and state to operate a business, as well as any professional licensing you may need.

The next step is to completely separate personal funds from business funds. It is normal to use some personal funds to start a business, and oftentimes when applying for business credit your personal credit information will be required as well, but when a business is registered as a separate entity all personal and business funds should be kept apart. Not only does this simplify accounting matters and alleviate any worries over the commingling of funds, it also protects you and your personal credit rating from any business or accounting mishaps. However, it is important to remember to keep your personal finances in good order because personal financial standing can have an effect on how lending institutions view your business when you apply for business loans or business credit lines.

To begin the separation of personal and business funds, open a business checking account in the company’s name. The simple and basic way to differentiate between personal and business credit is to acquire distinct credit cards in the business’ name. To build your new company’s business credit report, you can put virtually all expenses on these cards and pay them at the end of each month. By keeping up-to-date on all credit card payments you will avoid interest fees and make your business more likely to be approved should you want to apply for business to business credit, or traditional loans and business credit lines from banks.

At this point, a business should begin to apply for business credit with the vendors they use. There are certain vendors, usually the larger ones, that are generally more lenient about extending credit and credit lines to new businesses. This new business friendly credit could be used for office supplies or equipment and serves to expand your business credit report from one merely listing credit cards, to a report with a positive and varied business financial history. The diversity and extent of your business credit report will allow you to approach b2b credit and lending institutions with confidence.

Whether you have begun a new business or you already own and run a business, the best actions you can take to further establish business 2 business credit and a business credit line is by assuring that your business credit report is in good shape. There are a number of business credit reporting agencies that will provide you with your business credit report. Choose a reputable credit reporting agency and request a copy of your business credit report often to check your standing and be on the lookout for fraud and unverifiable charges.