Are you a business with no credit or limited credit history? Can secured business credit cards help you? Here’s what you need to know (updated for 2013):
Building credit (or rebuilding credit) for your business has never been an easy task…. banks aren’t very generous in extending credit to businesses in these situations. And even though “The Great Recession” has come and gone, banks still remain stingy with credit cards and loans.
Fortunately, there are ways that you – a small business owner – can either (a) build up credit for your new business, or (b) re-build credit for your established business. Whether you have a LLC, S-Corp, or C-Corp, let’s take a look at some of the best tips and tricks to build your business’ credit fast.
First, let’s talk about secured business cards
We all know secured credit cards are a great way to build up your personal credit. Since you’re putting down a security deposit to match your credit limit, almost anyone can qualify for them. So that means business secured credit cards can do the same thing for your business, right? Well, not necessarily…
Where can you find them?
If you look on Google for secured business credit cards, you will see all kinds of spammy “articles” that are trying to fool you to click on their ads, but you won’t find any actual secured business credit card offers anywhere. Why is this?
Unfortunately, there are no major banks in the U.S. that I know of that offer secured cards for business. Seems crazy, but there are probably two reasons for this:
1. Not profitable enough for the banks – Secured credit cards aren’t a big money maker for the credit industry. On the other hand, unsecured small business credit cards make them tons of money… so it’s no surprise that’s all we see them offer these days.
2. Better alternatives to a secured card – When you think about it, a secured card isn’t even necessary. Why? Because most business credit cards will allow you to apply under your personal credit. The advantage of going this route is that it allows businesses with no credit or bad credit to get a business card, assuming the owner’s personal credit is good. Then by adding your business D&B number to the card account, you will also be able to build credit for your business at the same time.
Here are the best ways to build business credit
Although secured credit cards may not be an option, there are still a couple easy and straight-forward ways to build/re-build your company’s credit:
Tip #1: Get credit accounts at office supply stores, gas stations, etc
Staples, Office Depot, and some gas stations offer business credit accounts with approval requirements that are typically less strict than the banks. These can be a great way to build business credit, but be careful, because the interest rates are astronomical so carrying a balance with them won’t be a good idea.
Tip #2: Get a secured business loan from your bank
Many banks offer secured business loans, even though they don’t offer secured business credit cards. For example, Bank of America gives secured business loans for amounts $10,000 or greater if you have a CD or savings with them that you are willing to put up as collateral.
Tip #3: Get an unsecured business card by piggybacking on your personal credit
The easiest way is to apply for business credit card(s) under your personal credit card. Then add your company’s Dunn & Bradstreet D-U-N-S number to the account, so it will also show up on your business credit report.
What is a D-U-N-S number? Think of it as a Social Security number for your business. It’s a 9 digit number issued by the business credit agency Dunn & Bradstreet. It’s considered to be the standard source for keeping track of a business’ credit and should be for all of your company’s lines of credit.
If you don’t already have a D&B number, don’t worry. Applying for one is easy but unfortunately it will take up to 30 days or so and you will receive it in the mail. Meanwhile, you can apply for your business credit card and get that going right away, and then call up the customer service and add the D&B number to your account once you receive it.
IMPORTANT WARNING: American Express business cards do NOT report information to D&B unless it’s negative (i.e. you have a delinquent account). For this reason, I recommend Chase if you are looking to build business credit. Go here to see my review of their Ink card offers.