Beauty Store Business

JAN 2018

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76 January 2018 | beautystorebusiness.com PERSONAL VS. BUSINESS CREDIT In order to build a good business credit score, it's important to understand the differences between personal credit and business credit. As individuals, as soon as we receive a Social Security number and apply for our first job, the three major credit- reporting agencies start tracking our lives and building our personal credit profile. Any firm that issues credit will usually report their experience with us to the credit reporting agencies. The eventual result is a report that ranks us personally in terms of credit risk. While business credit works the same in many ways, it differs in others. Information about business credit transactions is gathered by the business credit agencies to create a business credit report. Identification includes business name and address, and Federal Tax Identification Number (FIN), also known as an Employer Identification Number (EIN), issued by the IRS. The business credit bureaus use this information to generate a report about a company's business credit transactions. In many cases, companies that issue business credit will rely on the business credit report to determine whether they will grant the applicant credit and how much credit they are willing to give. Keep in mind, too, that if your personal credit reports are mixed with your business reports, any problems with your personal credit may make it difficult, if not impossible, to obtain credit for your business. An important difference between business and personal credit is that business credit information is sent to the business credit bureaus on a strictly voluntary basis. Because of this, the credit bureaus may receive little or no information about your credit worthiness√źno matter how long you've been operating your store or salon and no matter how well you have handled your business credit. That's why it's to your definite advantage to take steps to create a positive business credit rating. ESTABLISHING A BUSINESS CREDIT REPORT Once you have established a positive credit score with the business agencies, it will be easier for you to acquire future lines of credit and get favorable terms on leases and loans. Any time you apply for a lease or a loan from a financial institution, the bank and most landlords will check your credit score before acting on your application. In almost any type of business transaction, a favorable credit history will give your business a reputation for financial stability. It's easiest and safest to establish a business credit report if your business is structured as a corporation or LLC with a Federal Identification Number (FIN) or Employer Identification Number (EIN) issued by the IRS. If you're operating as a sole proprietorship or partner- ship, your business credit information could be mixed in with personal credit data and vice versa, muddying up the credit waters. In addition, sole proprietors and partners are personally responsible for the debts of the business, putting all personal assets at risk. Keep in mind that credit-scoring models used by the credit bureaus are complex and not revealed to the public. Therefore, it's impossible to know exactly which factors affect credit and to what to degree. However, the steps outlined here are generally regarded as those that will help you to build a positive credit score. First, register your business with the business credit bureaus. The major business credit bureaus are Dun & Bradstreet (dandb.com), Experian Business (experian.com) and Equifax Business (equifax.com). Registration with Dun & Bradstreet using your legal business name is free and will provide you with a DUNS number. The DUNS number is a unique nine-digit sequence recognized as a universal standard for identify- ing and keeping track of the over 100 million businesses in the D&B database. Once you register, you will probably be solicited to purchase a full credit profile; current list price is about $549. While there are some advantages to buying a full credit profile, it isn't at all necessary to do this. Simply registering at no cost will enhance the credibility of your business with potential creditors and enable suppliers and lenders to learn something about your business. Of the big three, Dun & Bradstreet is the only bureau that focuses exclusively on business credit, and they focus primarily on how a business interacts with vendors and other suppliers. Once you have registered your business with the major credit bureaus, you can take steps to build a positive business credit report. Almost every beauty-industry business owner will need to ask for credit at some point. By building your business credit score early, you can avoid having to use your personal credit history or a personal guarantee in order to get the best possible terms when you apply for credit or a loan. 7 TIPS TO BUILD YOUR BUSINESS CREDIT Here are some valuable tips to help your credit work for you and your business, not against you. 1 Be certain to ask any company you have a favorable credit history with to report their experiences to the business credit bureaus to help you build your credit reputation. Remember, there is no requirement for them to do this. Unless you ask, it probably won't happen. 2 Make sure that your business meets all state, federal and industry requirements for conducting business. It's important to build your business credit under a Tax Identifi- cation Number, not your personal Social Security number. 3 Make sure that your business has a current business plan. While a business plan isn't always required in credit situations, having one, along with supporting documents, is one of the most widely accepted ways to demonstrate a solid management approach. This, in turn, enhances the roadway to a high business credit score. Your business plan does not have to be a lengthy and complicated document, but it should contain the basic goals of your business and it must be in writing. For help in creating a business plan, log on to sba.gov. 4 Make full use of business credit cards. If you decide to open more than one business credit card, avoid applying for them all at once. It's best to build up a history with one From le : Natali_Mis, Courtney Keating It's best to build up a history with one card before applying for another. continued on p. 80

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