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What's the end game of business credit


Atl-Marcos
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I get all the small net 30 accounts to get you started, then gas cards, then Amazon, then biz credit cards without a PG (more or less).

 

What I'm not sure on is what is the end goal. So two years down the road I have a fairly thick file. I have some non-PG credit cards. I've been perfect on payments, etc. So then what? Maybe an auto lease with the biz?

 

In the end the things that seem like real end game products are still going to require a PG. I'm not going to get a $5M SBA loan for an acquisition without a PG, no matter if I had a twenty year perfect file. I'm just trying to get a feel for the end game, what can someone who has a real business with real profits expect in a couple of years time. Sorry if this has been discussed elsewhere.

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Good question! I'm looking for the same answer! I'm looking to expand my businesses, without PG'ing but that's looking less and less likely. It's almost like...what's the point of establishing business credit if I have to PG anyway?!?

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Business lending is riskier than personal. Hence why everyone is looking for a non PG option.

 

For this reason, unless you're doing $25MIL with good cashflow you have to PG.

 

Otherwise, you could get the loan and do whatever you want with the money to include making dumb decisions and then default with no repercussions.

 

PG effectively reduces the chances of you doing this. Once youre in the $25MIL range its less likely that is what you will do with a loan.

 

The end game? To always be credit worthy in the event that you need a cash infusion into your business or you want to grow.

 

There is nothing wrong with a PG for a legitimate business person other than hes on the hook if the business defaults.

 

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I guess my point is, how is this any different than using your own personal credit. I'm trying to get a handle on what the end game is, what's the goal. My personal credit is good enough and I show enough W-2 income to get most everything I want/need, but obviously still growing that. Generally speaking other than a car lease and some non-PG credit cards, I don't see the point in building the business credit. If I need a loan for $500k let's say, it's still going to depend on my personal credit. It's not like I can do all these business credit building things, have a 580 personal credit score and get a loan for $500k regardless if I PG or not.

 

I guess my point is, if I have a business that makes good money and I need a $5M loan then I really just don't think the business credit is going to matter at all. It's going to be on the financials of the business, and the personal credit of the applicant. One of my friends recently got a $1M credit line for his business, and he had done none of this. No DUNS number. No Experian credit score, nothing at all. Just a good business with good financials.

 

This is seriously a serious question. I'm trying to figure out what the final goal is. I don't really care about a Quill account. I want credit lines for my business that will grow with it. Generally speaking the hard ones with a bank, where you need audited financials and everything are not making a decision based on your business credit profile but rather on the financials of the business, the credit profile of the owner/applicant and the banks tolerance for risk.

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As mentioned Risk. And the more money you make generally the riskier it becomes. But also most larger businesses have assets and other items that lenders could take. Good financials are always needed for big loans but even at that the company doesn't have to be profitable just cash coming in. And of course the businesses credit rating is looked it.

 

There have been a few members here that have gotten to that level. No PG loans, mortgages and corporate cards built from the ground up. The most important part of building though isn't the credit it's the business it self.

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Your friend probably has business credit. He just doesn't know it. I'm sure they put a UCC filing in place as well with this loan.

 

Let's say he needs a second loan for $1MIL or he needs to lease equipment. Is he going to want to PG those as well? Probably not. Worst yet, with a UCC filing in place and no other business credit history... it's likely he won't get approved. Even with good cash flow and assets.

 

That UCC puts any future creditor in 2nd place in the event of a default. This is another risk factor for the lender. So im this case how much would it hurt to not be credit ready? It's shortsighted for you to think your business can't benefit from good credit.

 

Example Dell Biz Credit of $50K no PG, no money down and 0% 12 months offer all the time. Your IT solutions solved and you got what you nees upfront so you can grow your business on their dime and risk. Same with Quill. Office supplies solved and you get to invest your money 30 days longer.

 

What if you could return 10% on your Net 30? You need to monetize each aspect of your operations. Use your cash to save or make money for as long as possible.

 

His first loan and its performance coupled with payment data is what gets you past the UCC.

 

They look to see if... are you paying your bills on time? How much are you paying? Are you carrying a balance each month? Those metrics matter and shows stability which therefore risk.

 

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As mentioned Risk. And the more money you make generally the riskier it becomes. But also most larger businesses have assets and other items that lenders could take. Good financials are always needed for big loans but even at that the company doesn't have to be profitable just cash coming in. And of course the businesses credit rating is looked it.

 

There have been a few members here that have gotten to that level. No PG loans, mortgages and corporate cards built from the ground up. The most important part of building though isn't the credit it's the business it self.

And see, there is the rub.

 

I've not seen a valid case for why it's better to build the business credit over building the business itself. If the business has the sales then you can get the business credit you need. But it doesn't really work the other way except in small amounts. You can't build business credit enough to where if you have a $50k Gross company you're getting all the credit you need. You can probably fairly easily get $100k-200k of PG business credit based on your personal income and personal credit along with any business credit building. And further, I think you could get that $100k-200k of business credit without doing any of the business credit as discussed here. Minus perhaps a program or two you miss out on. But, you're not really moving into the non-PG world until you have a decent sized business.

 

As far as the business line that my friend got. He got it at a small local credit union. But he also has average weekly deposits of around $400k. So the $1M wasn't a huge chunk of that.

Edited by Atl-Marcos
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I have always told people they need to focus on building there business just for the sake of making money never mind credit. You can't get to Non PG loans, cards etc, with out having a real business that does well. Once the business grows more often then not the credit grows organically with the business. But it also helps to have a established credit file that dates back 10 years and shows good trades of $100k plus.

 

In your friends case simply seeing the $400k in desposits did it for them they really don't need to see much more. With out seeing that they may want to review his biz credit. Also keep in mind it's even easier to get approved with a CU with that type of cash flow due to "right to set off". One missed payment on the loan and they will drain his account.

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  • 2 weeks later...

I guess my point is, how is this any different than using your own personal credit. I'm trying to get a handle on what the end game is, what's the goal. My personal credit is good enough and I show enough W-2 income to get most everything I want/need, but obviously still growing that. Generally speaking other than a car lease and some non-PG credit cards, I don't see the point in building the business credit. If I need a loan for $500k let's say, it's still going to depend on my personal credit. It's not like I can do all these business credit building things, have a 580 personal credit score and get a loan for $500k regardless if I PG or not.

 

I guess my point is, if I have a business that makes good money and I need a $5M loan then I really just don't think the business credit is going to matter at all. It's going to be on the financials of the business, and the personal credit of the applicant. One of my friends recently got a $1M credit line for his business, and he had done none of this. No DUNS number. No Experian credit score, nothing at all. Just a good business with good financials.

 

This is seriously a serious question. I'm trying to figure out what the final goal is. I don't really care about a Quill account. I want credit lines for my business that will grow with it. Generally speaking the hard ones with a bank, where you need audited financials and everything are not making a decision based on your business credit profile but rather on the financials of the business, the credit profile of the owner/applicant and the banks tolerance for risk.

 

I'm glad you said it was seriously a serious question because I was about to ask you if you were serious :-p.

 

Here are a few reasons I can think of.

- I can put 50K a month on my business card and it has 0 effect on my personal credit score. If I did that on my personal card it would tank my score because utilization would be high.

- As a practice, if you've built a business, why wouldn't you want to have as many of those accounts in your business name as possible? Having an AT&T account in the name of your business is probably less likely to be questioned as a legitimate business expense if you are audited vs having it in your personal name.

- Those lines with PG will often help to establish other lines without PG. Maybe not bank lines, but certainly plenty of others.

- Most of all, I just can't imagine why anyone building a real business wouldn't want to see the business name on every account possible Having to do business under a personal name screams "I don't have a real business". Admittedly, that's just a personal thing.

 

Thatb said, I think you make a great point about what the end game should be. Certainly having a business that has no PG is an admirable ambitious long term goal in my opinion. But having great credit in the meamtime with some PG seems like a great intermediate goal, in the same way that getting a personal score of 700+ is a great intermediate goal on the way to 800.

Edited by Poor Bastard
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One of the big benefits of having business credit vs relying only on personal credit is that most business lines of credit / credit cards other than cap1 do not report on your personal credit bureau files. With this in mind, if you constantly are revolving let's say $50k on your business credit cards, it won't affect your personal scores where as if you used personal cards, it could tank your scores and make it seem as though your are "sufficiently obligated" and in over your head. So, the end game is to have enough business credit where even if pg'd you never have anything business related reporting on your personal files. I just notice that "poor bast***" touched upon this in the post above and to me, it is the most important reason to have built up separate business credit.

Edited by direct
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One of the big benefits of having business credit vs relying only on personal credit is that most business lines of credit / credit cards other than cap1 do not report on your personal credit bureau files. With this in mind, if you constantly are revolving let's say $50k on your business credit cards, it won't affect your personal scores where as if you used personal cards, it could tank your scores and make it seem as though your are "sufficiently obligated" and in over your head. So, the end game is to have enough business credit where even if pg'd you never have anything business related reporting on your personal files. I just notice that "poor bast***" touched upon this in the post above and to me, it is the most important reason to have built up separate business credit.

 

BUT.... and this is the big point here. Whether you ever did any of this business credit building or not, you still have access to most business credit cards. They pull your personal credit once, you're PG'ing it, and yes it's a "hidden line". But Chase for instance could care less whether you have 50 accounts reporting on your business credit report. They will make the decision whether to give you a business credit card based on your personal score.

 

So that's my point. It seems like a lot of work, when you don't really need to do it anyway. If you have a 800+ credit score, then having a net 55 at NewEgg is going to have a much smaller impact than having decent income plus a good personal score.

 

While I agree with what PoorB says, in the end I'm not sure I see that business credit building as discussed here brings much of value to the table. I've read BRBiz's post pretty much completely as well as others. And in the end, I don't see them getting a bunch of non-PG lines that are dependent SOLELY on the business credit.

 

Here's a simple analogy. Let's say we have two mythical friends, Bob and Steve. Bob and Steve are entrepreneurs. Both start-up a company and do really well for themselves. Both are bringing in $500k gross, and $100k in profit, and they have the tax returns to prove it. Over those two years they approach their credit needs very differently. Bob focuses on his personal credit, he has an 800 credit score, with over $100k in lines, and isn't using any of the lines. Steve follows this forum's advice, and spends two years building up his business credit profile. He has 20 or so different business accounts on his various business credit reports. However, he's not so conscientious about his personal credit. His personal credit score is a 650, and he owes around 70% of his $30k in credit lines.

 

Now Bob and Steve need to borrow $50k to fund some business expansion. Who is going to find credit easier? I'm going with Bob.

 

Now if Steve also has the 800 credit score and the business credit built-up. I don't really believe that Steve has any significant advantage over Bob.

 

It seems to me having a good personal score, plus good income is much more important than having a thick business credit file. What my original question was asking, was when does it pay off, and what does it look like? In the end if I mess up my personal credit and I'm sitting at a 480 fico, what does it matter if I have a 10 year thick business credit file, I'm not going to get extended much credit.

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Well you are correct if you have 50 trades that won't matter for a Chase card or most credit cards BUT your thinking small. Bigger companies don't get chase cards they get charge cards which will be based off of your business credit, then from those charge cards you will start seeing loans and lines of credit based solely on your company credit and financials.

 

What do these "small" accounts do? They help you get to the bigger picture. No matter what industry your in there are accounts that will be helpful to your business, we may not discuss them here but there are thousands of accounts out there. Doesn't matter if they report if you can use them for your business.

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One of the big benefits of having business credit vs relying only on personal credit is that most business lines of credit / credit cards other than cap1 do not report on your personal credit bureau files. With this in mind, if you constantly are revolving let's say $50k on your business credit cards, it won't affect your personal scores where as if you used personal cards, it could tank your scores and make it seem as though your are "sufficiently obligated" and in over your head. So, the end game is to have enough business credit where even if pg'd you never have anything business related reporting on your personal files. I just notice that "poor bast***" touched upon this in the post above and to me, it is the most important reason to have built up separate business credit.

 

BUT.... and this is the big point here. Whether you ever did any of this business credit building or not, you still have access to most business credit cards. They pull your personal credit once, you're PG'ing it, and yes it's a "hidden line". But Chase for instance could care less whether you have 50 accounts reporting on your business credit report. They will make the decision whether to give you a business credit card based on your personal score.

 

So that's my point. It seems like a lot of work, when you don't really need to do it anyway. If you have a 800+ credit score, then having a net 55 at NewEgg is going to have a much smaller impact than having decent income plus a good personal score.

 

While I agree with what PoorB says, in the end I'm not sure I see that business credit building as discussed here brings much of value to the table. I've read BRBiz's post pretty much completely as well as others. And in the end, I don't see them getting a bunch of non-PG lines that are dependent SOLELY on the business credit.

 

Here's a simple analogy. Let's say we have two mythical friends, Bob and Steve. Bob and Steve are entrepreneurs. Both start-up a company and do really well for themselves. Both are bringing in $500k gross, and $100k in profit, and they have the tax returns to prove it. Over those two years they approach their credit needs very differently. Bob focuses on his personal credit, he has an 800 credit score, with over $100k in lines, and isn't using any of the lines. Steve follows this forum's advice, and spends two years building up his business credit profile. He has 20 or so different business accounts on his various business credit reports. However, he's not so conscientious about his personal credit. His personal credit score is a 650, and he owes around 70% of his $30k in credit lines.

 

Now Bob and Steve need to borrow $50k to fund some business expansion. Who is going to find credit easier? I'm going with Bob.

 

Now if Steve also has the 800 credit score and the business credit built-up. I don't really believe that Steve has any significant advantage over Bob.

 

It seems to me having a good personal score, plus good income is much more important than having a thick business credit file. What my original question was asking, was when does it pay off, and what does it look like? In the end if I mess up my personal credit and I'm sitting at a 480 fico, what does it matter if I have a 10 year thick business credit file, I'm not going to get extended much credit.

 

I think you are overlooking an important point here. In order to keep your personal scores in the 800+ range, your utilization needs to be under 10%. If you run a business, you are constantly buying supplies, inventory, etc. If you obtain business credit cards and lines that don't show up on your personal credit files, you can theoretically max those business credit cards/lines and not affect your personal scores. If you use personal cards / lines, you will tank your scores unless you pay them off before they report each month. The trick is to leverage your personal scores to obtain the business cards that don't report on your personal credit. So using your example...Chase checks your personal credit and you have the high 800+ scores...they issue you the business cards that don't report and you use them as opposed to using your personal cards.

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Well you are correct if you have 50 trades that won't matter for a Chase card or most credit cards BUT your thinking small. Bigger companies don't get chase cards they get charge cards which will be based off of your business credit, then from those charge cards you will start seeing loans and lines of credit based solely on your company credit and financials.

 

What do these "small" accounts do? They help you get to the bigger picture. No matter what industry your in there are accounts that will be helpful to your business, we may not discuss them here but there are thousands of accounts out there. Doesn't matter if they report if you can use them for your business.

That's probably the best explanation I've heard yet. Thank you. I really wasn't trying to be argumentative, I just didn't see why it made sense to do this.

 

However, and here is my caveat: "you will start seeing loans and lines of credit based solely on your company credit and financials."

 

I'm just not sure the evidence is there that this is the case. If your companies financials are strong, then you're getting the lines of credit because it makes sense for the bank/lender. I see the small accounts we chase as being an insignificant piece of the picture. If it were 50% of their decision, then yes it completely makes sense. But when you're getting those million dollar lines of credit, I just don't see having a Quill Net 30 account as mattering at all.

 

I see business credit as completely opposite of personal credit.

 

In personal credit, your credit score rules everything. A 480 score with a $200k income won't get you anything(ask me how I know this).

 

However in business credit the opposite is true. A $200k net profit company with a million in revenues, with no significant business credit will get you most everything you could possibly get.

 

Does that makes sense?

 

However with that said, a major piece of profitability of a company is cashflow management. If I get my money faster, and pay it out slower it makes my company much more efficient. So in that sense I can appreciate the benefit of having as much of your expenses in delayed payments.

 

 

I think you are overlooking an important point here. In order to keep your personal scores in the 800+ range, your utilization needs to be under 10%. If you run a business, you are constantly buying supplies, inventory, etc. If you obtain business credit cards and lines that don't show up on your personal credit files, you can theoretically max those business credit cards/lines and not affect your personal scores. If you use personal cards / lines, you will tank your scores unless you pay them off before they report each month. The trick is to leverage your personal scores to obtain the business cards that don't report on your personal credit. So using your example...Chase checks your personal credit and you have the high 800+ scores...they issue you the business cards that don't report and you use them as opposed to using your personal cards.

No I'm not. I have said over and over again that you can get business credit cards that don't report on your personal report. In fact in the part you quoted I directly said that: "Whether you ever did any of this business credit building or not, you still have access to most business credit cards. They pull your personal credit once, you're PG'ing it, and yes it's a "hidden line". But Chase for instance could care less whether you have 50 accounts reporting on your business credit report. They will make the decision whether to give you a business credit card based on your personal score."

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Makes sense.. And maybe even a easier way to explain it is it's more of a step process. Take the initial steps from first building up to auto loans/ leaseas, equipment leases etc. and then you sort of hit a wall for a little while the company ages and grows. Once it's grows and time goes by you will be able to get charge cards and small loans with out a PG and then it grows more from there. But it takes time. Can't really make it go any faster.

 

Good financials and biz credit go hand in hand.

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This was a great thread.

 

We have been listed in good standing for 7 years with the sec of state. We opened a second location and have done so with out signing a loan or business credit. We now want to separate ourselves personally from risk and want to majorly expand. The end goal... for us is to take a bigger chance and limit exposure to our personal lives.

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Another possible benefit of having good business credit that I don't think has been mentioned - I am pretty sure insurance prices for things such as liability insurance are in part based on it. A business that shows an excellent credit history probably gets a better rate, and has more insurance companies willing to insure them.

 

I know for certain that personal insurance rates are based on personal credit. Perhaps someone else who knows can confirm if it's also the case for business insurance and business credit.

Edited by Poor Bastard
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We just got liability and workman's comp insurance for a business we acquired last month, and they never even asked the EIN of the company but my SSN. To be clear that was an acquisition where my primary company purchased an add-on company. However at least it was a soft pull not a hard pull. Perhaps that will change as we get larger.

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For a LLC or Corp workers comp requires your EIN. Many agents simply use peoples socials which is wrong.

 

And yes many insurance companies will pull the biz credit. Has happened to us.

Edited by BRBiz
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