Read on to learn more about how this small business credit scoring system works. You’ll also find tips to help you improve your company’s SBSS score so you can set your business up for success the next time it needs to borrow money. 

What Is the FICO® SBSS℠?

FICO Scores are well known (and frequently used) in the consumer lending space. But the company also creates a credit scoring system for business lenders, too. 

The FICO Small Business Scoring Service, also known as FICO SBSS, is a type of commercial credit score. FICO launched SBSS in 1993. Yet despite its frequent use, many business owners have never heard of the score.

Some lenders use FICO SBSS to evaluate the risk for small business applicants. If you want an SBA loan, for example, you’ll need a good FICO SBSS score for certain loan options.

The FICO SBSS works in a unique way. Most business credit scoring models ignore the business owner’s personal credit information. But FICO SBSS bases its score on a combination of factors from your personal and business credit reports. 

There’s a reason why small business lenders appreciate a credit score that evaluates both personal and business credit data. In many ways, your company is an extension of you. 

Do you make good personal financial decisions? If so, a commercial lender might believe those good practices could extend to your small business management habits, too. And, of course, the opposite may be true as well. 

FICO says that knowing more about an applicant’s risk empowers lenders. Lenders can make more informed decisions about whether to approve small business financing applications and how much to charge when they do. 

How Does SBSS Work? 

The FICO Small Business Scoring Service features a range of 0–300. Like most credit scoring models, a higher number means you’re more likely to repay your debts as promised. A score in the mid-to-high 200s typically indicates that you’re a good credit risk.

On the other hand, a low SBSS score could cause you problems in business credit decisions. In the small business lending space (and elsewhere), a low credit score communicates that you may be unreliable with your payments, and possibly a bad investment.

Like most credit scoring systems, the algorithm isn’t available to the public. That’s proprietary information. But here are some details about the FICO SBSS score that we do know:

• Lenders can use the score to evaluate applications for business loans, credit cards, and lines of credit up to $1 million.
  
• A flexible system lets lenders choose to score credit reports from a variety of major consumer and commercial credit reporting agencies including:
  • Business: Dun & Bradstreet, Experian Business, PayNet, and Equifax Commercial
  • Consumer: Equifax, TransUnion, and Experian
    
• FICO uses its LiquidCredit® Service to deliver the SBSS score lenders in a speedy and secure manner.
  
• A higher score could increase your loan approval odds, and potentially help you secure larger business loan amounts and better financing terms.
  
• You may be able to offset personal credit problems, at least to some extent, with strong business credit habits. 

How Is the Credit Score Calculated? 

FICO considers a number of factors from both your business and personal credit reports in order to calculate your SBSS score. Here are some examples: 

• Personal Payment History
• Business Payment History
• Credit Utilization Rates
• Business Age
• Financial Data (Business)
• Number of Employees
• Public Records (Liens and Judgments)
• Liabilities and Assets 
• Revenue
• Cash Flow

The scoring system considers the factors above and others to calculate an applicant’s credit risk level. It also gives lenders a lot of predictive flexibility.

• Lenders can mix and match which business credit report and consumer credit report it wants the scoring model to score.
  
• There are more than 100 model variations that allow lenders to evaluate specific market segments of potential customers (business leasing, term loans, etc.). 

FICO SBSS also has the ability to consider the personal credit of up to five owners of a company (anyone with 20% ownership or more). 

As you can see, there’s a lot of room for variance within the FICO SBSS scoring system. 

Because each lender can specify which factors it wants to be considered (and to what degree), you could potentially see a different score with one lender versus another.

Who is the FICO SBSS Score Used By? 

According to multiple sources, around 7,500 business lenders rely on the FICO Small Business Scoring Service to assess credit risk levels. Some lenders who use the score include: 

• U.S. Bank
• KeyBank
• Huntington National Bank
• Santander Bank
• PNC Bank
• HSBC

The Small Business Administration (SBA) also uses the SBSS score. SBA lenders must use the score to evaluate applicants for several of its loan programs — including SBA 7(a), which is loans over the amount of $350,000. 

There’s another point that’s worth mentioning here. Any credit score is merely a tool that lenders use to evaluate risk. But it’s the lender who sets the approval criteria you need to satisfy to qualify for financing, not FICO. 

Here’s an example to illustrate the previous point. 

• Many lenders set the number 160 as the minimum FICO SBSS score you need to earn before you’re eligible for a loan.
  
• Yet lenders who offer SBA-backed loans might be willing to work with you if you have a FICO SBSS score of 140 or higher (albeit with a manual underwriting process if your score falls below 155). 

How Do I Get My SBSS Score Up? 

The Fair Credit Reporting Act (FCRA) doesn’t apply to businesses. Unlike the consumer credit world, if a lender turns you down due to a low FICO SBSS Score, it doesn’t have to explain why it declined you, or even tell you which scoring model or credit report it used.

Despite this lack of information, there are a few strategies you can use to try to increase your FICO SBSS score. 

Focus On Building Good Personal Credit 

Lenders can tell a FICO SBSS scoring model to pull in data from any of your consumer credit reports — Equifax, TransUnion, or Experian. So, you’ll want to make sure your personal credit score is in good shape.

If you’re looking for ways to improve your credit score, this guide can help you get started. And if you need to build good credit in the first place, you might want to consider opening a few accounts, such as secured credit cards or a credit builder loan with Credit Strong.

Most of all, be sure to pay on time. Late payments arguably pose the most potential danger to your credit score.

The whole point of a consumer credit score (like a FICO Score or VantageScore credit score) is to predict whether you’ll pay 90+ days late in the next 24 months.

Establish a Good Business Credit History 

The FICO Small Business Scoring Service can also consider data from a business credit bureau like Dun & Bradstreet, Experian Business, PayNet, or Equifax Commercial.

So, if you want a good FICO SBSS score, you should also work to establish good credit with the commercial credit reporting agencies. This guide, Business Credit 101, can offer you some in-depth tips on how to accomplish that goal.

In the meantime, open accounts that report to at least one business credit bureau (such as a business tradeline, commercial credit builder loan, small business credit card, etc.). Then, focus on making timely payments. Better yet, you can pay early.

Earning a good FICO SBSS Score can take time. Your best bet is to begin working on your business credit long before you think you’ll need it to apply for any type of financing. 

Bottom Line

A good FICO Score can open doors for you and your business. Solid credit can also help you save money. So, it’s worth the time and effort it takes to learn how the scoring system works, and then strive to earn the best score possible for your company. 

Credit Strong is a Division of Austin Capital Bank© 2024 Member FDIC.
FICO® is a registered Trademark of Fair Isaac Corporation

The post FICO® SBSS℠ – The Small Business Credit Score appeared first on Credit Strong.

When a business owes taxes to the federal government and fails to pay them, the Internal Revenue Service might file a tax lien against the company. If your business is behind on its taxes, it’s best to find a way to avoid a tax lien if you can. 

Tax liens can make it difficult, sometimes impossible, for your business to borrow money. Far more concerning, a tax lien might be detrimental to your entire business operation and could have severe ramifications for your finances as a business owner. 

What Is a Business Tax Lien? 

A business tax lien, at its core, is a legal document. The document gives the government a claim against all of your business property. 

When a business has unpaid tax obligations, the government can use a tax lien to preserve its rights to seize assets that might help satisfy that delinquent debt. Everything from your business bank accounts to equipment to real estate holdings and more could be at risk. 

The purpose of the filing is two-fold. A tax lien: 

• Puts pressure on a tax debtor to resolve its delinquent tax bill.
  
• Moves the government to the front of the line, ahead of any other creditor’s claim on your assets. 

When the IRS files a federal tax lien against your company, a ticking clock starts. You have ten days from the date of filing to pay your full tax obligation or the lien will go into effect. 

In addition to the IRS, a state may file a tax lien against your company as well. So, it’s in your company’s best interest to stay current on tax payments at both the state and federal levels. 

How Can a Business Tax Lien Affect Me? 

As a business owner, a tax lien can make life difficult in several ways. For starters, once a tax lien is in place, the government can escalate matters and use a tax levy to seize funds from your bank account, take possession of your property, and more. 

A tax lien could also have a negative impact on your business credit. The business credit bureaus may include tax lien filings on commercial credit reports. 

When a business credit reporting agency adds a tax lien to your company’s credit report, it may lower your business credit score. And if you’ve been working hard to build good business credit, a blow like a tax lien could be especially painful. 

There’s another credit complication to consider too. Unlike consumer credit reports, anyone willing to pay for your company’s information can buy a copy of your business credit report and see the IRS lien or state tax lien filed against your business. 

Even if you’re lucky and the tax lien doesn’t show up on your business credit report, it’s still a public record. That means there are other ways creditors and investors might detect it. 

As a result, you may not qualify when you apply for business financing in the future. And on top of future lenders being hesitant to do business with you, tax liens could be a turn off to potential investors, vendors, and business partners too.

How to Get Rid of a Tax Lien

In 2020, the IRS filed close to 300,000 federal tax liens. 

The easiest way to fix a federal tax lien is for your business to pay the IRS the money it owes. If your company can’t afford to pay its tax obligation, you might consider applying for a business loan or 0% APR business credit card promotion to finance the debt over time.

Once you pay off a tax lien, the IRS will file a release within 30 days. This removes the government’s claim on your property. 

However, if you don’t have the money to pay the government and you can’t (or don’t want to) finance unpaid tax debt with an outside lender, there are other options you can consider. 

Discharge of Property

You can fill out a request on behalf of your business to discharge the lien from certain property. If you’re eligible for a certificate of discharge, it might permit you to sell property or refinance a loan to free up funds you can use to pay the government. 

The IRS website provides information about the different hoops you’ll need to jump through in order to qualify for a lien discharge — including the completion of an application (Form 14135). You can also reach out to the IRS Collection Advisory Group for more information. 

Subordination

Another potential move you can make is to apply for subordination that lets certain creditors move ahead of the IRS. Subordination could make it easier for your company to qualify for a business loan or other financing it could use to resolve its outstanding tax liability. 

IRS Publication 784 provides details you’ll need to follow if your business wants to request a Certificate of Subordination. And there’s also a video entitled “Selling or Refinancing When There Is an IRS Lien” that can provide more insight to guide you.  

Withdrawal

You might be able to convince the IRS to withdraw the tax lien against your business entirely. Withdrawal does not mean you no longer owe the debt. However, it removes the public record filing and signifies that the government won’t compete with other creditors for your assets. 

To apply for a withdrawal, you’ll want to complete Form 12277. You’ll also need to meet eligibility requirements, including: 

• The satisfaction and release of your tax lien.
  
• Being in full compliance with the IRS (business tax returns, individual tax returns, etc.) for three or more years.
  
• Maintaining a current status with all of your estimated tax payments and federal tax deposits.

There is a scenario where you could qualify for a tax lien withdrawal before paying the full debt. But you’ll need to (a) owe $25,000 or less, (b) sign up for a Direct Debit installment agreement (c) make at least three direct debit payments in a row, and more to be eligible. 

How Can You Prevent a Business Tax Lien? 

The IRS often waits until it has sent out five collection notices before filing a tax lien against your business. And if you owe less than $10,000 in back business taxes, your company might not be on the receiving end of a tax lien at all. 

Just be aware that these rules are not set in stone. Your experience could differ. 

The best way to avoid a business tax lien is for your business to pay off its full outstanding debt to the government. But there are some cases where entering into a payment plan might be enough to keep matters from escalating. 

Note that if your company’s outstanding tax balance is $25,000 or higher (but not more than $50,000), you may need to agree to a Direct Debit arrangement. This installment agreement gives the IRS permission to draft funds directly out of your business bank account. 

Can Tax Liens Also Be Filed Against My Personal Assets? 

The federal or state government can file tax liens against both business and personal assets in some situations. Your business entity structure has a lot to do with whether or not your personal assets are protected, though there are other factors at play as well. 

• Sole proprietors in particular are vulnerable when the government files a tax lien against their business. As a sole proprietor, you and your business are essentially the same from the IRS’ point of view.
  
• Corporation and limited liability company (LLC) owners typically enjoy more personal protection where business tax liens are concerned.
  
  LLCs that file an election to be treated as a corporation (Form 8832) may be exempt from personal property levies (though not always).
  
  LLCs without the corporate election might face levies on personal property, but there are some items that the IRS will typically leave alone.
  
  And if the IRS can find grounds to “pierce the corporate veil,” you might lose the personal liability protection that incorporating can provide.
  

Because there are scenarios where your personal property could be at risk, it’s wise to seek legal advice when you’re facing a business tax lien. You can check with your local bar association if you need a recommendation for a reputable tax attorney in your area. 

What If You’re Not Able to Pay? 

Falling behind on your business taxes can be incredibly stressful. Even bankruptcy might not wipe out your tax debt or resolve a federal or state tax lien filing.

However, you may be able to work something out with the IRS or state government even if resolving the full bill or making big payments seems financially out of reach. 

Some options you might want to consider are asking for a discount or setting up an affordable payment arrangement. If you’re fortunate, you might be able to get the IRS to accept an Offer in Compromise — a type of settlement that could resolve your tax debt for pennies on the dollar. 

Keep in mind that ignoring the government shouldn’t be your go-to approach when your business owes a tax bill it can’t afford to pay. In fact, trying to avoid your business tax debt will only drive up the balance and limit your options. 

Remember that as a delinquent taxpayer, your best bet is to consult with an attorney with experience in tax law. A tax attorney can review your situation, discuss potential solutions, and help you determine the best course of action to protect your business. 

The post What Are Business Tax Liens? And How They Affect Your Business Credit appeared first on Credit Strong.

Here’s what you need to know about the differences between operating as a sole proprietor vs. a limited liability company (LLC) vs. an S-Corp to decide which one is right for your business.

How Being a Sole Proprietor Works

A sole proprietorship is the default corporate structure for every one-person business. You don’t have to file any paperwork to elect it, so if you’ve been running your company without stopping to think about business entities, you’re a sole proprietor.

Because they’re the default choice, sole proprietorships are one of the most common business structures. If you’re an independent contractor or a freelancer, you might decide to remain a sole proprietor for simplicity’s sake.

Not only is there no paperwork or fee to set up a sole proprietorship, but there are also no annual reporting requirements or charges to maintain one, which isn’t true of other business entity structures.

While you can bring on as many employees as you want, there can only ever be one owner of a sole proprietorship. If you’d like a partner to help you run the business or equity financing through shareholders, you’ll need to use a different option.

Sole proprietorships aren’t really distinct from their owners like corporations or LLCs. As a result, there are no taxes at the business entity level.

Your sole proprietorship is a disregarded entity, which means you can largely ignore it for tax purposes and report your business income on your personal tax return.

Your net earnings after allowable business deductions are subject to ordinary income tax rates, just like W-2 wages.

In addition, you’ll owe a 7.65% self-employment tax, which is the employer half of the FICA tax or payroll tax, 6.2% for Social Security tax, and 1.45% for Medicare tax.

The lack of distinction between you and your business has its pros and cons for taxes, but there’s no real upside when it comes to liability. If someone decides to sue your sole proprietorship, you’ll be personally liable for it all.

You could plausibly have to liquidate a valuable personal asset to pay a business debt. As a result, one of the primary reasons people elect to transition out of sole proprietorship and into an LLC or S-Corporation is to limit their personal liability.

Finally, an often underappreciated consideration with sole proprietorships is that they’re not well-suited to building business credit or getting bank financing.

Many lenders see sole proprietors as riskier borrowing prospects than other business entities and are less willing to give them loans. You’ll have some problems building business credit as a sole proprietor. 

How LLCs Work

A limited liability company, or limited liability corporation, is a pass-through entity for tax purposes by default. Your profits are generally taxable as ordinary income plus 7.65% for self-employment, with no taxation at the entity level.

Unlike a sole proprietorship, LLCs limit your personal liability for business debts, as the name suggests. They’re separate legal entities from their owners.

Speaking of owners, LLCs can have more than one. The owners of an LLC are known as members, and most states don’t have any limits on their number or type.

That means they can be individuals or other business entities, or you can skip them altogether. Forming a single-member LLC is a popular strategy among those who want liability protection, but prefer to remain the only business owner.

To convert an existing sole proprietorship into an LLC or open one from scratch, you’ll need to take the following steps:

• Come up with a name: It must be unique from other LLCs in your state and usually has to include some variation of “LLC” or “Limited Liability Company”.
  
• Choose a registered agent: Registered agents are the point of contact for the LLC and must accept tax and legal documents on its behalf.
  
• File the state-appropriate paperwork: Depending on your state, you may need to file forms like articles of organization or a certificate of formation.
  
• Pay the state fees: Most states require that you pay a fee to set up your LLC. For example, California charges $70.

Depending on your state, it may also be necessary to draft an operating agreement, which establishes the internal governance rules for the business.

Even if it’s not legally required, it’s highly recommended if there are multiple members. For example, the operating agreement establishes who gets what percent of the company’s profits and subsequently pays taxes for them. 

In addition to the initial paperwork necessary to set up your business as an LLC, you’ll have ongoing reporting requirements and fees to pay each year. Check the rules for your state to confirm your responsibilities.

One other noteworthy feature of an LLC is that it lets you make an election to receive the tax treatment of an S-Corporation or C-Corporation.

That doesn’t affect your business structure – it’s still an LLC – but it does change how you pay taxes on earnings. Keep that in mind as we discuss how S-Corporations work.

How S-Corporations Work

Before you can fully appreciate S-Corporations, you need to know a little about how C-Corporations work. C-Corporations are the default form of corporation, and you’ll need to open one and file a separate form to get S-Corp status.

C-Corps give their owners the benefit of limited liability and corporate structure at the cost of increased paperwork, filing fees, and double taxation. That last one means earnings are taxable at both the corporate and individual levels.

For example, in 2021, C-Corps owe a flat 21% federal tax rate. If your C-Corp were to net $100,000 in profit, it would pay $21,000 in taxes to the IRS at the corporate level.

Next, it would have the option to pass on some or all of its remaining profits to you, the owner and shareholder. When you receive them, you would also pay taxes on the earnings at the individual level as either a salary or a dividend.

Depending on how you receive the income, it would be taxable at different rates:

• Salaries: As an owner of a corporation, you can pay yourself wages. They would be a deduction that reduces your corporation’s taxable income, but you would pay ordinary income taxes and self-employment taxes on them at the individual level.
  
• Dividends: You can also pay yourself through dividends, which almost always qualify for lower tax rates than ordinary income. They’ll be taxable at 0%, 15%, or 20%, depending on your personal income levels. However, dividends don’t reduce your corporation’s taxable income.

Now, let’s get back to S-Corps. S-Corps offer most of the same advantages and disadvantages as C-Corps. They limit your liability and allow for multiple shareholders at the cost of increased filing requirements and fees.

However, they do away with the double taxation problem. There are no taxes at the business level. You pay ordinary income on the business profits at the individual level only.

In addition, you only have to pay the self-employment tax on the earnings that you receive as a salary, not any of the business profits or dividends (usually referred to as distributions).

Note that you must take a “reasonable” salary, though. You won’t get away with reducing your personal income tax by paying yourself $20,000 for the year as a self-employed marketer if the going rate for an employee of your caliber is $65,000.

Finally, S-Corp distributions can be tax-free, taxable as a dividend, or a capital gain, depending on the circumstances. Tax planning for S-Corps is highly complex, and you’ll need to rely heavily on an expert advisor to help you utilize the tax status properly.

Sole Proprietor vs. LLC vs. S-Corp

As you can see, there’s a lot to consider when deciding between doing business as a sole proprietor, an LLC, or an S-Corp. Let’s review the most significant pros and cons of each, starting with sole proprietors.

Pros and Cons of Sole Proprietors 

Sole proprietors are often best for people who value simplicity. They require no time or money to set up, and you’ll have an easy time maintaining them each year.

The most significant danger for a sole proprietor is that you’re responsible for all your business’s debts. That makes them the worst choice for occupations that involve a high likelihood of being sued.

Next, let’s take a look at the pros and cons of LLCs.

Pros and Cons of LLCs 

An LLC may be the best option for someone who values flexibility. You have a lot of control over the ownership structure as well as the tax treatment of earnings.

The setup and maintenance requirements are also manageable, and it gives you the benefit of limited liability. All in all, LLCs are a well-rounded and balanced choice.

Finally, let’s look at S-Corps.

Pros and Cons of S-Corps 

An S-Corp is likely the most complex legal entity of the three options here. There are a lot of moving parts and additional reporting responsibilities for taxes and general corporate requirements.

For example, S-Corps have their own annual tax returns and filing requirements, and owners need to establish a board of directors.

As a result, S-Corps are usually best for advanced businesses with sophisticated operations. They have the time and money to deal with the increased requirements and can use the structure to create tax savings.

Which One Should You Pick?

Now that you can thoroughly compare and contrast a sole proprietor vs. LLC vs. S-Corp, the million-dollar question becomes which one is best.

As you can probably guess, the answer is that it depends. There is no universally correct option for every scenario.

Each structure has its own tax advantages and limited liability protection levels. You’ll need to assess your business’s needs and circumstances to make the best decision.

For example, if you’ve recently started your company as a solo small business owner, it might be best to stick with a sole proprietorship for a while.

You don’t know how things will go, and sole proprietorships don’t require as much investment. Besides, you’re likely to be earning less in the early stages, and your legal structure means less when you have lower profits.

Conversely, if your business is well-established with revenue and expense patterns that you can safely predict, becoming an LLC owner might be the better choice.

Maybe you’ve accumulated more assets that you’d like to protect by limiting your liability. You may also be more likely to receive a tax benefit from more sophisticated tax plays because you have a higher, consistent income.

Besides, you could always make an S-Corp election later, if you want.

Build Credit For Your LLC or S-Corp

Regardless of your business entity structure, building business credit is an important part of your company’s development. Just like personal credit does for consumers, your business credit affects how likely you are to get affordable financing.

It can also impact matters like the price of your business’s insurance premiums and its ability to secure contracts with vendors or the government.

If your business is an LLC or an S-Corp, one of the best ways to build your business credit is to open a CreditStrong Business credit builder account.

To qualify, your business just needs to be one of the accepted legal entities and at least three months old. Because the account is a secured installment loan, there’s no credit score requirement.

That means that once you get approval, you start making monthly installments. A portion of each one goes into a locked business savings account, which we’ll release to you once you pay off the loan or decide to close your account. Give CreditStrong for Business a try today!

The post Sole Proprietor vs. LLC vs. S-Corp appeared first on Credit Strong.

Whatever your motivation for doing so, here’s everything you need to know about how to get a DUNS number.

How to Get a DUNS Number

Fortunately, getting a DUNS number is free and straightforward. You can complete the request form in about five minutes. The fastest and easiest way to do it is through the Dun & Bradstreet website, but you can also make your request on the phone.

Either way, you’ll need to provide the following business information:

• The name of your business
• Your business address
• The name of the business owner or chief executive officer (CEO)
• The legal structure of your organization, such as a corporation, partnership, or sole proprietorship
• The year the business started
• Your primary type of business
• Your total number of employees, including full and part-time

After you submit your request for your free DUNS number, D&B runs security checks to help prevent fraud and protect their data integrity. The process usually takes one or two business days, after which you’ll receive your new DUNS number.

What Is a DUNS Number?

D&B’s Data Universal Number System (DUNS) is a global system for identifying businesses and tracking their data, including credit scores, corporate family trees, and banking information.

A DUNS number is a nine-digit, unique entity identifier assigned to a business within the system, which you can use to pull up all their relevant data.

Commercial, non-profit, and government entities are eligible for DUNS numbers, including self-employed individuals operating as sole proprietors.

If your organization has an additional branch at a different physical location, each must have a separate number. Likewise, if multiple businesses are at the same physical address, each legal entity would get a number.

In many ways, you can think of your DUNS number as a Social Security Number for your business. For example, where other identifiers (like EINs) can change over time, a DUNS number is permanent, even if the name or structure of the business changes.

How Can a DUNS Number Help Me?

A DUNS number is helpful in building business credit with D&B and in qualifying for business financing.

In order for Dun and Bradstreet to calculate a PAYDEX score for your company, which is equivalent to a FICO score for consumers, it must have a DUNS number. The PAYDEX score is a business credit score that measures how consistently a business pays its creditors and suppliers on time and in full.

Beyond business credit purposes, the federal government asks for your organization’s DUNS number in several scenarios. For example, you’ll need one to:

• Submit a bid for federal government contract work
• Apply for federal government grant funding

Because getting a DUNS number is free and the request process is painless, it’s a good idea to get yours as soon as possible. You never know if you’ll need it in the future. 

Even if you already have net 30 accounts and business tradelines in place, which help establish your business credit history, tying them to an existing DUNS number will help your business credit efforts.

Get ahead of the game so you’re well prepared when one of your potential partners tries to pull your business credit report.

SAM Registration

Another reason to get your DUNS number is to access the System for Award Management (SAM). SAM is an application created by the federal government for federal grant applicants and government contractors. You can use it to:

• Search for governmental assistance listings, wage determinations, contract opportunities, and contract data reports
• Apply for federal grants
• Do business with the federal government
• Access publicly available data on federal awards

To register with SAM, you’ll need your DUNS Number. In addition, you’ll have to provide your EIN or Taxpayer Identification Number (TIN), plus a notarized letter confirming that you are the authorized entity administrator.

After you send the necessary documentation and register with SAM online, it may take as much as two weeks to process your request. Once it does, you can begin submitting grant applications and bidding on contracts.

FAQs

Who is Dun & Bradstreet?

Dun & Bradstreet, or D&B, is the corporation that created the Data Universal Numbering System and is responsible for assigning DUNS numbers. R.G. Dun & Corp and Bradstreet Co. (and later Bradstreet Credibility Corp) merged to form D&B in 1933.

In addition to providing DUNS numbers, D&B offers multiple data analysis products and services for:

• The public sector
• Small businesses
• Sales, marketing, and finance functions

You don’t need to buy any of D&B’s other products or services to get your DUNS number.

Is a DUNS number the same as a Federal Tax ID number?

Your DUNS number is not the same as your Federal Tax ID number or EIN. Both are nine digits, free to obtain, and used to identify a business, but they come from different sources, serve different purposes, and never match.

A DUNS number is permanent, even if the business changes its name or corporate structure. D&B issues DUNS numbers, and you use them to isolate a Live Business Identity in the D&B data cloud, pull its credit report, or interact with the government.

EINs can change if a business gets a new name or corporate structure. For example, you may need to request a new one if you go from an LLC to an S-Corporation. In addition, the IRS issues EINs, and you generally only use them for tax purposes.

How do I look up my DUNS number?

Someone in your company may have already requested a DUNS number for your business, especially in large organizations. Consider reaching out to the authorizing official that handles such matters in your company before applying.

If that person has since left the organization or misplaced the number, you can look it up on the D&B website. In fact, the first step in creating a new DUNS number for your business is always to double-check whether D&B already has one for you.

To initiate the search, you’ll need to give D&B your legal business name, mailing address, and telephone number.

The post How to Get a DUNS Number appeared first on Credit Strong.

What Are Net 90 Vendor Accounts?          

Any time you do business with a supplier or service provider, you owe them money. Some require payment at the time of your order, while others allow you more time to pay in the form of short-term business credit. 

They may check your report from business or personal credit bureaus to decide.

When a company gives you up to 90 days to pay the invoice, it’s considered a net 90 vendor account. It’s among the most lenient of payment terms, compared to paying instantly or waiting 30 or even 60 days. 

This “buy now, pay later” approach can help small business owners free up cash for other things.

This vendor credit is also called “trade credit.” Not everyone may qualify for trade credit, and not all suppliers or service providers offer it. 

If they do, it’s likely they have an application process somewhere on their website or in their accounts department that you can start to see if you qualify.

Net 90 vendor accounts can make a big difference in your business. By having up to 90 days to pay your bill, for resellers or retailers, it’s possible for you to sell goods even before you have to pay for them from the original supplier.

Vendor credit creates a positive cash flow situation that’s good for long-term growth.  

What Does Net 90 Payment Terms Mean?             

The term “net 90” means that you have 90 days from the time you place your order until your bill to them is due. Some vendors may start the clock at the time customers place their orders, while others wait until they ship your goods to begin the 90 days.

In most situations, there’s no additional charge for this 90-day grace period, provided you pay the entire amount owed by the 90-day due date. 

If your accounts payable doesn’t remit in time, the remaining balance is charged to a business credit card on file or even subjected to additional fees or interest.

Still, other vendors could have a discount for early payment. If you can pay your bill before the 90 days is up, you might save money on your order, get free shipping, or earn additional offers that can help you stretch your budget further. 

Always inquire about any benefits for paying your balance before it’s due.

The vendor may also have a limit to how big a balance you can put on 90-day net payment terms. Similar to a credit limit on a business credit card or line of credit, you can’t borrow more than this amount until you’ve paid some of the trade credit off.

Different Types of Vendor Accounts          

Net 90 accounts are the most sought-after type of account, as they give you the most time to pay. They aren’t the only ones out there, however.  

Net 30 

As the name implies, net 30 vendors give you 30 days to pay your bill with the supplier or service provider from the date of order or shipment. Net 30 terms aren’t a very long time but could be enough to help you manage your money matters and free up some cash.

Net 30 vendors are the most common and are more likely to work with new businesses by offering smaller business credit lines. Most will ask you to place the order and keep a credit card on file, which will be charged if the 30 days pass and you owe anything from the original invoice.

Note that business credit cards and some personal credit cards come with a minimum of a 21-day grace period for purchases. When added to the original 30 days from the vendor, this could give you 51 days to pay your bills without interest or fees.

Net 30 payment terms are the default in businesses, but some may require payment upon receipt. With a better payment history, vendors could qualify you for a longer payment term. 

Just be sure you never make a late payment, and ask if there’s an early payment discount for prepaid accounts.

Net 60     

Net 60 vendors give you twice as long as the more typical net 30 accounts. With two months to pay your bills, you can more easily manage other expenses, like payroll or utilities. 

It is also more likely that you’ll sell the items you purchased with the net 60 terms, and you can then repay the vendor back directly.        

Companies that offer net 60 invoice terms to customers usually work with more established companies that have a history of paying their bills. 

If they accept new businesses, it’s likely that they will start you with a smaller business credit limit first, then watch how you handle it before offering more.

Net 60 vendors are common in all industries, from wholesale goods to web services. Getting 60 day credit terms is a benefit for working with these companies and something you should seek out if you need more time to pay your purchase order balance.

Those, with a very good or excellent credit file through Experian or other credit bureaus, are more likely to get this perk, as well as those who have shown customer loyalty to the vendor through regular orders.

Net 90     

Net 90 vendors aren’t as common, and they generally work with companies who have stellar business credit reports. The application process for working with these companies may be more rigorous, and they will require a backup way to pay if your invoice goes unresolved.

For a net 90 vendor relationship to work, you should track your orders and mark the date on which your final invoice will come due. As you pay off your bill, you may get access to that same amount to place new orders, which will also come with a new 90 days to pay.

Over time, it’s possible for retailers and resellers to manage their inventory to let the net 90 vendor relationship help them grow their sales. More products on the shelves are always ideal for those hoping to boost revenue numbers.

List of Net 90 Vendors     

Net 90 day vendors aren’t widely advertised, and you won’t be able to just web search to find companies that offer this perk. That doesn’t mean you are without options, however. With a little ingenuity and effort, it’s possible to get net 90 invoice terms using these methods below:        

Option 1 – Negotiate for Net-90 Terms With Your Current Suppliers                               

If you’ve already been paying on time and have a great relationship with a supplier, it doesn’t hurt to ask what invoice options are currently available. They may have a net-90 program you can apply for over time. 

Some may be open to giving you 60 days to start, then work with you to transition for longer.

In any case, it’s always a good idea to keep making on-time invoice payments to build your reputation and your credit score. An added benefit of handling your finances well is that your current vendors will be more likely to say “yes” when you ask for 90 days to pay.

Option 2 – Put Net-60 Vendors on a Credit Card                           

Another possible solution is to use your existing personal credit card or business charge card in tandem with a 60-day invoice term to get that full 30 account benefit. 

You’ll only be able to do this if your credit card on file has a 28-day grace period, and not all do. Good credit history is also usually required.

Check your business credit card terms to see just how long you’ll get before payment comes due.

Like the example above, your supplier is more likely to grant you additional time to pay an invoice if you’ve shown reliability in the past. If you haven’t been good about paying on 30 day invoice terms, they won’t likely approve something as long as 60. 

New clients have less of a chance of getting this done. 

Option 3 – Put Net-30 Vendors on a 60-Day Credit Card                          

Finally, some business credit cards, like the Amex Plum Card and Brex eCommerce Card, have 60-day interest-free terms. When combined with your supplier’s net 30 account terms, this gets you a full 90 days to pay your bills before interest accrues.

Most suppliers are net 30 vendors by default, so you won’t likely need to ask for these extra business credit benefits. This is also a great option for businesses working with a new vendor account since you won’t have the established history with them to ask for longer than 30 days.

You’ll also get your on-time payments reported to the business credit bureaus from paying your business credit cards on time.

Business owners who make these payments every month will see their business credit score increase, and this alone may give them access to tradelines and offers they didn’t see before.

How to Choose the Right Vendor Account  

At first glance, it may seem that picking a vendor based on invoice payment terms is essential. Certainly, 30, 60, and even 90-day perks are alluring and may get you to settle on a vendor on that perk alone.

There is more to a vendor relationship than just the invoice terms, however. The quality of merchandise and services should always win out, as this is what gets passed along to your customers.

You should also see if your on-time payments get reported to business credit bureaus, like Experian, as this helps you qualify for small business loan products, working capital offers, and other small business financial solutions that can ease cash flow problems down the line.

If picking between two similar vendors, vendor credit can always be considered, but the reputation of your offerings should be priority number one. 

Keep in mind that you can also ask for more flexible payment terms down the road when you have become a trustworthy business credit risk with a higher business credit score.

The post What Are Net 90 Vendor Accounts?  appeared first on Credit Strong.

Vendor credit can provide businesses with an opportunity to get the supplies, inventory, or services they need, along with extra time to pay for them. 

What’s more, some vendors can help your company establish and build its credit history, making it easier to get approved for other forms of financing when you need it. 

Here’s what you need to know about vendor credit, including how it works, how to get it, and how it can help you build business credit.

What Is Vendor Credit?

With vendor credit, a vendor essentially lends money to a business, which uses it to purchase the supplies, inventory, or services that the vendor provides. 

In return, the business agrees to pay back the vendor in full within 30, 60, or 90 days — typically referred to as net-30, net-60 or net-90. Payment terms can depend on the vendor and its relationship to the business.

For example, if you’re just establishing a credit relationship, the vendor may only offer net-30 terms. But over time, you may be able to get access to longer terms if you pay on time— or even early.

Depending on the vendor, payments may or may not include interest. In some cases, you may qualify for a discount on your purchase if you pay early. 

If you miss a payment due date, though, you may be subject to a late fee. If you’re late often enough, the vendor may sever the credit relationship.

Vendor credit is also sometimes called trade credit or supplier credit because it involves financing from a trade or supply partner instead of an institutional lender. 

Vendor credit can help small businesses with their working capital, giving them time to make a payment instead of demanding immediate payment. It may also be the most affordable way to get financing for new businesses that don’t qualify for other traditional forms of business credit.

How Do I Get Vendor Credit?

Getting access to vendor credit can be easy if your business has been around for a while and has a strong financial track record. Even if your company is new, though, it’s possible to get approved.

Here are some ways you can get access to vendor credit for your business:

• Check for an application with your existing suppliers: If you already have supplier relationships, start by checking to see if they have an application for paying invoices on a deferred basis instead of at the time of purchase.
  
  You may be able to find this information on the vendor’s website or by calling your contact with the company. If the supplier offers trade credit, submit an application.
  
  Your chances of getting approved may be higher if you’ve had the relationship for a while and have consistent orders with the supplier.
  
• Call existing suppliers and ask to pay back on terms: If you can’t find an official application for vendor credit, consider contacting your suppliers via phone or email and asking if they can make your invoices payable on a net-30, net-60, or net-90 basis.
  
  If it’s an option, you may need to negotiate terms based on what works for you and the vendor you’re dealing with.
  
• Shop for new suppliers that offer trade credit: If your existing vendors don’t offer vendor credit, consider shopping for new suppliers that can provide you with that form of financing.
  
  There are several starter vendors with net-30 accounts that are relatively easy to get approved for, but take your time to compare multiple suppliers based on your needs to find the right fit.
  
  Keep in mind that it can be more difficult to get approved for vendor credit if your relationship with the supplier is new. But it can get easier over time as you establish multiple trade credit relationships with new and existing vendors.

How to Use Vendor Credit to Build Business Credit

Supplier credit can provide an excellent opportunity for small businesses to manage their working capital and cash flow. But for many businesses, especially new ones, it may be even more important to use vendor financing to build business credit. 

Building business credit is crucial because it opens up more opportunities to get financing in the future. 

Traditional business loans often require that you be in business for at least two or three years, that you have a strong financial track record, and that your business has a good credit history. 

It’s especially important for loans that don’t require a personal guarantee so that the business is solely responsible for repayment.

Here are some steps you can take to leverage the vendor accounts you have with your suppliers to establish a positive business credit history and set your business up for success:

• Establish and maintain good credit relationships with vendors: If your existing vendors offer trade credit, don’t delay taking the time to establish a credit relationship. If they don’t, shop around and compare suppliers that do offer financing terms, so you can start taking advantage of the arrangement.
  
  Be sure to do this with vendors that you use regularly, as regular payments will help build your business credit more quickly.
  
  As you use your vendor credit regularly and responsibly, you’ll have an easier time getting vendor credit with more suppliers, which can help with cash flow management even more and also make it easier to build your business credit.
  
• Pay on time all the time: As with any debt obligation, it’s crucial that you always pay on time. If you can, it may even make sense to pay early.
  
  As previously mentioned, some suppliers offer a discount if you pay your vendor bill early — for example, you may get a 2% discount if you pay within 10 days instead of 30 days. Also, if you want to obtain a perfect Dun & Bradstreet PAYDEX score, one of the major business credit scores, you need to pay your bills 30 days ahead of schedule.
  
  If your business is struggling and you’re not sure you can pay on time, contact your vendor right away to discuss potential solutions. If you have a good relationship with the supplier, you may be able to avoid having a late payment reported to the business credit bureaus.
  
• Make sure the vendor reports your payments: On its own, trade credit can make it easier for your business to manage its cash flow.
  
  But unless it’s reporting your payments to the business credit bureaus, it’s not helping you build a business credit report. The four major business credit bureaus include Dun & Bradstreet, Experian, Equifax and Paynet. The SBFE is another organization that you want payments reported to, as well.
  
  Before you establish a trade credit relationship with a supplier, ask if they report your payments to the business credit bureaus and which ones they report to. If the vendor doesn’t report, ask what it would take for them to start doing so. If they don’t report at all, consider another supplier.

The Bottom Line

Vendor credit can be an important tool for small business owners to better manage their working capital as well as establish and build a business credit history. 

What’s more, it can be an easy way to get financing if your business is relatively new and doesn’t yet qualify for other major forms of business financing.

If you’re already working with vendors to get your supplies, inventory, or services, ask if they offer trade credit and what it will take to get approved. If they don’t, consider switching to a supplier that does offer vendor credit. 

Once you’re set up with vendor credit, make sure you know which credit bureaus your payments are being reported to, and make it a priority to use your vendor credit lines often and make payments on time or early to maximize your relationship with them.

The post Everything You Need to Know About Vendor Credit appeared first on Credit Strong.

An EIN is a nine-digit number that identifies your business for tax and credit purposes, along with other reasons. It’s similar to a Social Security number for individuals but is instead for businesses.

While getting an EIN is optional for some small business owners, it’s important to have one if you want to build your business credit history. However, many small businesses are required to have an EIN, especially if they have employees.

Here’s what you need to know about getting an EIN and why it’s important.

How to Get an EIN

The process of getting an EIN is relatively simple, but it’s still a good idea to know the steps before you begin the process. 

If you’re just launching your business or you need an EIN to file your taxes, apply for a business loan, or you need it for another purpose, here are three easy steps to follow.

Check If You Are Eligible

There are only two main requirements to qualify for an EIN: your principal business must be located in the U.S. or a U.S. territory and the person applying must have a valid taxpayer identification number. 

Eligible taxpayer identification numbers include a Social Security number, an individual taxpayer identification number, and another employer identification number.

Your principal business is determined based on your primary revenue-generating activity and primary physical location. So even if you perform business outside of the U.S., you can still get an EIN if your main business activity is within the U.S. or one of its territories.

You don’t necessarily need to be the business owner to apply for an EIN for a business. Any responsible party who has a level of control over the company’s finances can submit the application.

Collect the Required Information

You don’t need to submit any documentation along with your application for an EIN, but you’ll likely need to gather some documents to get the information you need to fill it out. Among other things, important information to know includes:

• Basic information, such as the name of the business and its address.
  
• The type of business entity.
  
• Reason for applying.
  
• The date you started or acquired the business.
  
• The closing month of your accounting year (typically December).

• The highest number of employees you expect to have on your payroll in the next 12 months.
  
• The first date wages were paid or are expected to be paid.
  
• Whether you want to file an annual employer tax return instead of quarterly returns and if you expect to pay $5,000 or less in total annual wages.

If you’re not sure about some of these, consult with your accountant to make sure you’re providing accurate information to the IRS.

Submit Your Application

You can apply for an EIN online, by mail, or by fax. If you’re applying from abroad, you can also opt to apply by phone:

• Online: You can submit your application online through the IRS website. The process must be done in one session, and it will time out after 15 minutes of inactivity.
  
  Once you’ve completed the application and everything has been verified, you’ll receive your EIN immediately.
  
• Mail: Fill out and send Form SS-4 to the Internal Revenue Service, Attn: EIN Operation (or EIN International Operation if you’re not located in one of the 50 states or the District of Columbia), Cincinnati, OH 45999.
  
  It typically takes four weeks to process an application by mail.
  
• Fax: Fill out and send Form SS-4 to the IRS to one of three numbers: 855-641-6935 if you’re located in one of the 50 states or the District of Columbia; 855-215-1627 if you’re located in the U.S. but not in any state; or 304-707-9471 if you’re located outside of the U.S.
  
  If you provide your fax number on the application, you’ll receive your EIN within four business days.
  
• Phone: If you’re an international applicant, you can apply by calling 267-941-1099. Operating hours are Monday through Friday from 6 a.m. to 11 p.m. Eastern time. You’ll need to answer the questions from Form SS-4, but you won’t need to fill it out.

For most business owners, the online application will be the best option because it’s the easiest and fastest way to get an EIN. However, circumstances may require another method, so carefully consider your situation and needs before you decide how to apply.

Why Should a Business Get an EIN?

There are many reasons why a business should consider getting an EIN. In many cases, it may be required by the IRS. This is especially true if you have employees and need to file and pay payroll taxes.

You’ll also need one to file your business tax return if your company is structured as a partnership, corporation, or multi-member limited liability company.

Other situations where you might be required to get an EIN include:

• You’ve started a new business, and you either have or expect to have employees.
  
• You’ve hired employees or expect to hire employees (including household employees) and don’t already have an EIN.
  
• You want to open a business bank account, and the bank or credit union requires an EIN for the application.
  
• You’ve started a nonprofit organization.
  
• Your business has a Keogh plan.
  
• Your business is subject to excise, alcohol, tobacco, or firearm taxes.
  
• Ownership of the company has changed.
  
• You created a pension plan as the administrator, and it needs an EIN for reporting purposes.
  
• You’re administering an estate that needs an EIN to report estate income.
  
• You have a single-member LLC, a similar single-member entity, or an S corporation.

If you’re a sole proprietor with no employees, or you have a single-member limited liability company with no employees and are taxed as a disregarded entity, you can use your Social Security number to file your taxes instead of an EIN.

Even if you’re not required to have an EIN, it may still be a good idea to obtain one. In particular, you can’t establish a credit history for your business with your Social Security number. 

If you have plans for future growth that might require financing in some form or another, building a business credit history is essential.

When Do You Need a New EIN?

There are a few situations where you may need to obtain a new EIN, even if the business already has one. Cases can vary depending on the type of business structure you have.

Sole Proprietorship:

• Your take on partners and operate as a partnership.
  
• You incorporate your business.
  
• You’re subject to a bankruptcy proceeding.
  
• You purchase or inherit an existing business that you operate as a sole proprietorship. 

Corporation: 

• You’ve received a new charter from the secretary of state.
  
• You’re a subsidiary of a corporation using the parent company’s EIN, or you become a subsidiary of a company.
  
• You change your business structure to a partnership or sole proprietorship.
  
• You’ve merged with another business and created a new company.

Partnership:

• You incorporate your business.
  
• One partner takes over the business and operates it as a sole proprietorship.
  
• You end an old partnership and begin a new one.

Limited-Liability Company:

• You formed a new LLC with more than one owner.
  
• You formed a new LLC with one owner and chose to be taxed as a corporation or S corporation.
  
• You’ve formed a new LLC with one owner that has an excise tax filing requirement for tax periods beginning on or after January 1, 2008, or an employment tax filing requirement for wages paid on or after January 1, 2009.

If you’re unsure of whether you need an EIN for your particular situation, consult with a tax professional to get an idea of whether it’s a good idea. 

The Bottom Line

As a business owner, it’s important to have an EIN for your business whether or not you’re required to have one by the IRS. Fortunately, applying for an EIN is relatively easy, especially if you go through the online application on the IRS website.

If you don’t currently have an EIN for your small business, check to determine whether you need one. 

Even if you don’t, learn about the various benefits of having an EIN, such as the ability to build credit that’s separate from your personal credit score and the ease of getting a business bank account.

FAQs

Do I need an EIN for an LLC?

According to the IRS, an LLC needs an EIN if it has any employees or if it’s required to file certain excise tax forms. If you’re a single-member LLC and you chose to be taxed as a corporation or an S corporation, you’ll need an EIN.

Also, if you have a single-member LLC and your taxable income and loss will be reported by you, you’ll need an EIN if your state or bank requires it.

But if you have a single-member LLC that has no employees and no excise tax liability, and it’s a disregarded entity, you won’t need an EIN.

How much does an EIN cost?

It’s free to apply for an EIN through the IRS, and the process is relatively straightforward. If a company or individual offers to provide you with an EIN for a fee, it may be a scam, or at the very least, a bad business decision.

If you need an EIN for your business, the process is quick once you have all the required information, so there’s no reason for most business owners to pay someone else to do it on their behalf.

How can I get an EIN immediately?

The best way to get an EIN fast is to apply for one through the IRS website. The application doesn’t take too long, and once your information has been validated, you’ll get an EIN immediately.

You should also receive a PDF with your EIN, which you can hold onto for when you need it. You may also consider printing out a copy for your records. 

Note that if you decide to apply via fax, it’ll take up to four business days to get your EIN, and you’ll need to provide your fax number on the application, or else it’ll take longer. If you apply by mail, it’ll take four weeks.

The post How to Get an EIN appeared first on Credit Strong.

The UCC refers to Uniform Commercial Code, and such a filing on your commercial credit report can impact your ability to obtain credit in the future.

What Is a UCC Filing?

A UCC filing is a legal notice that allows a creditor to notify other creditors about assets your business has used to secure a loan with the filer. Lenders can file UCC liens with the secretary of state offices, which then act as public notices that anyone can find.

In other words, it’s a way for a lender to officially announce its claim to the collateral that you used to secure a loan with the lender. 

Forms of collateral can vary but are usually agreed upon by the business owner and the lender before the loan is closed. 

If you’re applying for an equipment loan, for instance, the equipment you’re purchasing may serve as collateral. In other instances, lenders will typically let you know which types of assets they accept as collateral.

Once a UCC filing has been created, it remains in force until you’ve paid the loan in full or refinanced it with another loan.

The purpose of a UCC filing is to ensure that small business owners can’t offer the same assets as collateral on multiple loan applications. 

What Is the Uniform Commercial Code (UCC)?

The Uniform Commercial Code is a set of rules created to help regulate commercial transactions. Because each state has the right to create its own unique laws to govern such transactions, things can get complicated when companies do business across state lines.

The UCC, which was first adopted by Pennsylvania in 1953 and then by all other states over the next 20 years, is a comprehensive set of laws adopted by states to provide uniform rules and regulations. 

While it’s not a federal law, businesses are obligated to comply and can enter into contracts and agreements based on the UCC, knowing that the terms will be enforced, regardless of which state they operate or do business in.

The UCC is managed by the Uniform Law Commission and the American Law Institute, whose members make up the Permanent Editorial Board for the Uniform Commercial Code (PEB). 

The PEB monitors developments, recommends amendments and revisions, and publishes commentary to provide assistance to courts that are tasked with interpreting UCC rules.

What Does a UCC-1 Mean?

A UCC-1 statement is the official name of a UCC filing. The UCC-1 allows a creditor to formally and publicly declare its rights to an asset in the event that the borrower that used the asset to secure a loan ultimately defaults on that debt. 

Lenders are required by the UCC to incorporate full UCC-1 statements in their loan agreements for such a claim to be effective. 

The statement is also required to include detailed information about the borrower, along with an itemized description of all assets being used as collateral on the loan. 

There are a couple of types of UCC-1 statements that a creditor can file. Specific collateral UCC-1 statements, for instance, give the filer first-order secured rights to the asset in question. This type of statement is common in real estate and equipment financing.  

The second is a blanket lien or “all-asset” lien, which gives the creditor rights to a range of assets owned by the business. The terms of the lien must be detailed in the collateral section of the UCC-1 statement.

With some exceptions, UCC-1 statements are good for five years, but creditors can file a continuation within six months of the expiration date if the loan remains unpaid.

An Example of a UCC Lien Filing

Small business owners can use just about any type of asset as collateral to secure a loan. However, the most common forms of collateral include real estate, vehicles, equipment, inventory, and investment securities.

As an example, let’s say you own a pizza restaurant and want to finance the purchase of a new oven for more capacity. If you use an equipment loan, the lender will file a UCC lien to publicly lay claim to the oven in the event that you don’t pay off the debt as originally agreed. 

If you default, the lender can seize the oven — and possibly other assets, depending on the type of UCC-1 statement — to recoup the unpaid balance.

But, let’s say that while you’re still working on paying off the equipment loan, you want additional financing to grow your business. If you apply for a loan that requires collateral, you can’t use the pizza oven as collateral because it has an outstanding UCC filing on it. 

Even if you try, lenders will be able to see the UCC filing on your business credit reports and can perform a search in your state and see the UCC-1 statement.

How UCC Filings Affect Your Business Credit

When a creditor files a UCC-1 statement with the secretary of state, the filing will show up on your business credit reports. While the filing doesn’t directly impact your business credit scores, missing payments or defaulting on the underlying loan can wreak havoc on your scores.

More relevant is how a UCC filing impacts your ability to obtain credit. If you’re applying for financing after you’ve used an asset as collateral on a previous loan, you can’t use that same asset to secure a new loan.

Even if you’re not trying to use the asset as collateral, lenders may use its status to determine how much leverage your small business has, which can impact your ability to get approved.

Once you’ve paid off a loan, you may think that the lender will automatically terminate the UCC filing, in which case, you could use that same asset to secure another loan without any problem. 

But that doesn’t always happen. In some cases, UCC filings can remain on your credit reports for years after you’ve paid off the loan.

As a result, it’s crucial to check your business credit reports often to keep track of your payments and how creditors are reporting information to the commercial credit bureaus.

How Do I Get Rid of a UCC Filing?

If your loan is still outstanding, you need to either pay off the loan or refinance it with another lender before you can get rid of the UCC filing on your business credit reports.

Once the loan has been satisfied, there are a couple of ways you can get rid of the UCC filing. The first is to ask the lender to remove it by filing a UCC-3 statement. 

This statement, which is also referred to as a UCC termination statement, amends the original filing and terminates the lender’s rights to the collateral in question.

If your lender fails to submit the termination statement and you want to use the asset to secure another loan, you can visit your local secretary of state office and swear under oath that you’ve satisfied the debt.

The Bottom Line

UCC filings are common practice in business financing transactions and serve to protect commercial lenders from accepting assets as collateral if they’ve already been pledged to previous creditors.

If you have one or more UCC-1 filings on your business credit reports, match them with your outstanding loans to make sure they’re legitimate. 

If you have UCC filings on your credit reports for debts that you’ve already paid in full, reach out to the creditor and request they have it removed from your reports. If that doesn’t work, visit your local secretary of state’s office to request assistance.

In all of this, it’s important to check your business credit reports often to ensure that you build business credit responsibly so that you can receive affordable financing when you need it to grow your business.

The post UCC Filings and Your Business Credit Scores appeared first on Credit Strong.

They’re among the most flexible type of funding for businesses and individuals alike. Here’s what you should know about them, including what they are, how the different variations work, and how they affect your credit.

What Is a Revolving Line of Credit?

A revolving line of credit is a type of account that lets you borrow funds up to an assigned limit, pay off the balance, and then borrow up to the account’s limit again. 

Generally, you can leave the balance outstanding as long as you make minimum payments, though some accounts require periodic renewal.

For example, you might receive a revolving line of credit with a borrowing limit of $10,000. It would be available whenever you wanted to use it, and there would be no interest or payments until you withdrew from the account.

Say you use the line of credit to buy $10,000 worth of supplies for your business after having the line for a few months. Only then would your lender start to charge you interest on the $10,000 balance.

You’d have to make a minimum monthly payment, but there would likely be no final due date where you’d have to pay the balance off entirely. In the meantime, it would simply continue to accrue interest.

Once you paid off the principal and any interest charges, you could reuse the $10,000 to finance another purchase, and the process would repeat itself.

Revolving Line of Credit Examples

There are many different types of revolving lines of credit, and though they share a fundamental structure, there are some significant differences between them.

Credit cards are by far the most common example. You can get a business credit card or a personal one, and they come in secured and unsecured credit lines.

They generally have a grace period of about 25 days during which interest doesn’t accrue on outstanding balances.

If you carry a balance long enough for the lender to charge you interest, it gets expensive quickly. Credit cards have an average interest rate of 20.35%.

The second most popular revolving credit line is the home equity line of credit (HELOC). HELOCs use the equity you own in real estate as collateral. If you default, your lender could foreclose on your property.

HELOCs usually have a lower interest rate than credit cards, averaging around 8.73%, but they don’t have a grace period. As soon as you take a cash advance from the account, interest begins to accrue.

These are the most popular types of revolving lines of credit, but they’re not the only ones. You may also qualify for a business or personal line of credit.

These function similarly to a HELOC, but they may or may not require collateral. If they do, it won’t be the equity in your home. As a result, they usually have higher interest rates than HELOCs.

Revolving Line of Credit vs. Line of Credit

A revolving line of credit includes any account that lets you borrow against a credit limit, pay off the balance, then repeat the process at will. Because you can also wait to draw against the funds as long as you like, they’re a supremely flexible type of credit.

A non-revolving line of credit can take multiple forms, but you can only ever use the funds once. It usually has to be when you first receive approval for the account. 

Once you pay the balance back, your lender closes the account. To get further financing, you’d have to apply again.

The typical example of a non-revolving line of credit is an installment loan, such as student loans or an auto loan. They pay out their principal balance in a lump sum upfront.

You can use the funds to finance a purchase, and then you have to pay back the balance, plus interest in regular intervals over a fixed repayment term.

Non-revolving credit usually has a date where your balance comes due in full. Revolving lines of credit may not, but they often have high enough interest rates that you should pay off your balance quickly anyway.

How They Affect Your Personal Credit

Revolving lines of credit play a significant role in building your personal credit. In fact, whether you have them at all affects your score.

Your credit mix is worth 15% of your personal credit score under the FICO model, and a big part of that factor is having installment debts and revolving lines of credit. If you’ve only ever had a term loan, getting a credit card will benefit your score.

In addition, like any credit account, your monthly payments toward revolving lines of credit establish your payment history. It’s worth 35% of your FICO score, so paying on time and in full is essential to building good credit.

Finally, personal credit scoring models consider your total revolving debt balances and the percentage of your available credit that those balances represent. These factors are worth 30% of your FICO score.

The latter is called your credit utilization ratio. For example, say you have two revolving lines of credit. They have borrowing limits of $10,000 and $5,000.

If you have a balance of $5,000 on the first account and $3,000 on the second, their respective credit utilization ratios would be 50% and 60%. Your total credit utilization would be 53%.

It’s best to keep your utilization as low as possible. 30% should be your absolute maximum, and staying below 10% is best.

How They Affect Your Business Credit

There are more relevant business credit scores than relevant personal credit scores, and each one’s calculation relies on a unique combination of factors.

As a result, the impact revolving lines of credit have on your business credit depends significantly on which score you’re discussing.

Some business credit scores don’t include financial tradelines in their calculations, while some focus on them entirely. Others consider them in combination with vendor tradelines.

Financial tradelines are business financing accounts from a lender, like a business loan or revolving line of credit.

Vendor tradelines are lines of credit from the people you do business with, such as a supplier that offers you net-30 terms.

Among the credit bureaus whose scores consider financial tradelines, using revolving lines of credit to build business credit is a lot like doing so with your personal credit.

Establishing an extensive credit history between several accounts, keeping your balances at reasonable levels, and making your payments on time help you develop a good credit score.

Conclusion

Revolving lines of credit are among the most flexible financing types for businesses and individuals.

You can keep them in reserve to draw on them only when you need them, then repay your balances at a pace that’s more relaxed than most forms of installment credit.

Best of all, once you’ve paid them off, you can repeat the process without having to go through another round of credit applications.

Whether you’re a business owner who needs working capital to cover dips in cash flow or an individual looking to earn rewards for paying monthly bills, there’s a revolving credit account out there to suit your needs.

The post What Is a Revolving Line of Credit? appeared first on Credit Strong.

Unfortunately, these young businesses don’t have much time to establish a credit history, which means they usually have a low credit score if they have any at all. That makes it harder to get financing – but not impossible.

If you’re looking for a debt account to help your new business get through periods of thin margins or low revenues, here’s how to get a business line of credit with bad credit.

How to Get a Business Line of Credit with Bad Credit

A business line of credit is a type of revolving credit account that’s similar to a business credit card, with a couple of exceptions. First, there’s generally no grace period before interest accrues.

That means as soon as you take a cash advance from a line of credit, your lender starts charging you interest on the outstanding balance. They may also charge a flat fee for each transaction.

Second, lines of credit generally aren’t permanent. You can hold onto a credit card forever, but you’ll usually need to renew your line of credit regularly to keep it open.

Business lines of credit are often secured with some form of collateral, especially when you have a bad credit score. The extra security can increase your chance of getting approval and better account terms, such as a higher credit limit or lower interest rate.

Using inventory as collateral is common, but if your business owns real estate or equipment, those can also work for some creditors.

Besides collateral, here are some other ways to get a business line of credit despite having bad credit.

Online Business Lenders

In general, the younger your business is, the harder it is to qualify for a line of credit, especially from a traditional lender like a bank or credit union. For example, Bank of America and Wells Fargo require you to be in business for at least two years.

If your business is younger than that, it’ll be hard to get a line of credit or any other type of business funding from these kinds of creditors.

Fortunately, you may be able to get a business line of credit from an online lender. They’re generally more lenient when it comes to time in business and minimum credit score requirements.

For example, here are the minimum qualifications necessary for a few popular options:

• BlueVine: Six months in business, a minimum personal credit score of 625, and annual revenue of at least $120,000.
• Kabbage: One year in business, a minimum personal credit score of 640, and annual revenue of at least $50,000.
• OnDeck: One year in business, a minimum credit score of 600, no personal bankruptcies in the last two years, and $100,000 in annual revenue.

Note that using an alternative lender for a business line of credit or bad credit business loan will likely be noticeably more expensive than an account from a traditional institution.

They’re likely to charge more and have higher fees, such as an annual, renewal, or origination fee.

Consider Invoice Financing

While it’s not a business line of credit, invoice financing is another viable financing option for businesses that need a flexible source of working capital to help cover their overhead and smooth out their cash flow.

Creditors that offer invoice financing tend to have unique approaches to it, but it always involves borrowing against your outstanding invoices or accounts receivable. Usually, it looks something like the following.

You provide goods or services to your customer and invoice them for the value provided. However, they have a month or more to pay, which means you’re covering expenses during that period without the cash you earned.

To pay your bills in the meantime, you borrow a portion of the outstanding invoice’s value from a lender that offers invoice financing. Finally, when your customer pays you, you use the cash to pay back the amount you borrowed plus fees and interest.

Invoice financing is a relatively expensive form of borrowing in general, but it’s also usually easier to qualify for than a business line of credit. For example, in addition to business lines of credit, BlueVine also offers invoice financing.

They require you to have been in business for three months and have a personal credit score of 530 to qualify for invoice financing, but they ask for six months and a 600 credit score for a line of credit.

Invoice financing is similar but distinct from invoice factoring, which involves selling your invoices to a third party instead of borrowing against them.

How to Qualify for a Low-Interest Line of Credit

An online, bad credit loan will always have a higher interest rate than a competitive bank loan. Similarly, you’re only going to find legitimately low-interest lines of credit at traditional institutions, not online lenders.

To qualify, you’ll have to meet their higher credit and financial standards. There’s really no way around them. 

Here’s what you need to do to get yourself and your business ready to apply for a bank’s low-interest line of credit.

Build Your Personal Credit Score

Businesses may be separate entities from their owners on paper, but many lenders still review your personal credit as part of their underwriting for a business line of credit.

The primary reason for this is that most business credit accounts require that you guarantee them personally. That means if your business fails to pay back its debt, you’re personally responsible for covering the balance.

Besides, examining your well-established personal credit score gives lenders much more insight than they’d get from analyzing what might only be a year or so of business operations.

One of the best ways to build your personal credit for business purposes is with Credit Strong’s MAGNUM accounts, the nation’s largest and longest credit builder loans.

Our credit builder loan is like an inverted secured loan. Instead of getting your proceeds upon approval for the account, we put them in a locked savings account as collateral.

Then you make your monthly payments, which we report to the credit bureaus until you pay off the loan principal or cancel your account. At that point, we release the funds.

Our MAGNUM accounts are uniquely suited for people who want to improve their poor credit score and prime their personal credit for a future small business loan.

Business credit providers may discount a personal loan of a few thousand dollars when assessing your credit history, but our MAGNUM accounts report loan amounts up to $30,000. That’s irrefutable evidence of your ability to repay significant credit obligations.

Build Your Business Credit Score

Having a good personal credit score is usually necessary when applying for business accounts, but establishing a good credit rating for your business is just as important.

When your company is new, you’ll have to lean on your personal credit to get business financing, but if you prioritize building up your business credit score, you may be able to use it instead after a few years.

There are significant benefits to qualifying for financing using a business credit score. Perhaps most importantly, it can help you avoid signing a personal guarantee for company debts, which lets lenders collect from you if the business fails to pay.

Fortunately, CreditStrong also offers credit builder loans for businesses that can help you build business credit for future financing. Here’s all you need to do to qualify: 

• Form a business entity other than a sole proprietorship
• Request an employee identification number (EIN) from the IRS
• Be in business at least three months

Once you’re approved, we’ll report your payments to Equifax Business and PayNet, each of which is a major commercial credit bureau. Soon we’ll share them with Experian and the Small Business Financial Exchange, too.

You can customize your monthly payment and loan term, and there are no fees for canceling at any time.

Keep Your Financials Strong and Stay in Business

Your personal and business credit scores aren’t the only things lenders consider when you apply for a business line of credit. They’ll also analyze your financial statements and verify your time in business.

Work on improving financial metrics like your debt-to-equity and current ratios. Even if all you manage to do is scale up your operation and expand your gross annual revenues, lenders will be more willing to offer you a line of credit.

Having strong finances makes it more likely that you’ll stay in business, and simply keeping your company afloat for a few years makes it easier for you to qualify for financing.

Remember, most traditional financial institutions want you to be in business for at least two years before they’ll lend to you. If you have to, don’t be afraid to use short-term loan options like invoice financing until you reach that two-year mark.

With an excellent personal credit score, an established business credit history, a strong financial position, and a few years of operations under your belt, you’ll have no problem getting a low-interest business line of credit.

The post How to Get a Business Line of Credit with Bad Credit appeared first on Credit Strong.