There is more to obtaining business credit than just establishing a D-U-N-S® number and filling out applications.
Business credit needs to be built upon verifiable information, expanded using time-tested strategies, and then nurtured with solid payment habits. There are four types of business credit that range from the most basic to the most complex. Knowing the different levels of credit available to small business owners and knowing when to apply is crucial to your financial success.
Level one is basic trade or vendor credit, oftentimes called retail credit, and consists of low-level Net term accounts, such as Net 30, Net 10, etc. Credit accounts established at this level are generally lower dollar amounts and are invoiced on Net terms and paid within the defined terms. These accounts are usually easy to get as long as the business has established itself properly prior to the application process, but they are a good preliminary indicator to the business credit bureaus of a company’s credibility and payment habits.
Retail trade lines are typically offered by companies who will sell you the generic products needed by your small business. Very rarely do they ask for a personal guaranty, but they will likely pull a business credit report on your company. They will oftentimes report to the business credit bureaus and help to build a stronger corporate credit profile.
Most small businesses will establish accounts with these types of companies during their early stages, as a part of their normal day-to-day operations, not realizing these companies are reporting their payment habits until later. Remember, a payment paid just a few days past due to these types of retail accounts is almost impossible to get removed from your business credit profile, so it is imperative that they are always paid promptly. My company emails “payment reminders” to our customers to help insure these payments are paid on time.
Level two, revolving credit, is very similar to level one but generally involves higher credit amounts and usually offers options as to the repayment terms. These usually require a more in-depth credit check on your company and may even require at least a soft pull on the personal credit to verify identity and possible fraud issues. These accounts are offered business-to-business and may be offered as either set payment terms or open-ended terms. Larger Fortune500 companies who offer revolving store credit cards typically will require a review of the business credit profile for a history of solid payments, good scoring models, and an established D&B® rating. Some companies will offer contractual credit lines for operational needs, such as equipment financing or the materials needed in day-to-day production.
Credit accounts established on level three, business financing, are reserved for companies who have already passed th