A press release from Fifth Third Bank is a perfect reminder that even small business owners have options when it comes to establishing business credit – and it needs to be separate from their personal credit profiles.
Fifth Third Bank
The Fifth Third Bank announced it had extended more than $7.6 billion in credit to business customers – and it’s done so in just three months, between January and March. It’s clear lenders are beginning to loan money again – and even to small business owners, who faced especially trying times during the recession. During the announcement, John Bultema, executive vice president and the head of Business Banking said,
We are focused on listening to our customers to understand their businesses and changing needs. Fifth Third works closely with customers to provide credit and financing services to fit their business strategy and help them expand and generate jobs.
For this bank, providing assistance for those interested in establishing business credit is a priority.
Those who received a piece of more than $7 billion include a health care facility that provides behavioral treatment for children, adults and senior citizens. It will use its funds to expand. Another company, CGM Services in Tampa, wanted to expand its HVAC marketing while gaining market shares. The bank provided the funding for the owners do that.
Meanwhile, Greg Kosch, executive VP of Commercial Banking, said,
Fifth Third believes businesses, both large and small, play a key role in our continued economic recovery.
He reiterated his bank’s commitment to helping clients improve their financial options and access to capital.
If you’re a small business, there may be opportunities, such as venues for raising capital, that you’re missing out on. For instance, many small businesses rely on the owner’s social security number when applying for credit cards or other loans. Setting up a federal tax ID number is easy and can open a lot of avenues that have been out of reach in the past.
Even if you don’t employ anyone but yourself, you can simply notate that on your application. The number of employees you have or do not have doesn’t affect your ability to secure an EIN. In fact, you can do it online by answering the questions on the forms and get your confirmation all at once. To set up a federal tax ID number or EIN, as it’s sometimes referred to, contact your nearest Local IRS Field Office, call the IRS Business and Specialty Tax Hotline at 800-829-4933 or apply online at irs.gov.
Establishing Business Credit
Now that you’ve established an EIN, you can begin building a credit profile for your business. The biggest difference is found in the numeric scale. For consumers, the scores range from 300 to 850. Anything higher than, say, 700 is considered excellent credit for that consumer. On the other hand, business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating.
Like consumer score, there are many factors that define a business’s credit score. Many of the same dynamics apply, such as whether the bills are paid on time, the length of time the business has been operating, current available credit and other similar factors.
There are few, if any, financial experts who would say using your personal information to apply for business credit is a good idea. It’s not good for the business owner or the business. Consider this: many of today’s small business owners took hits during the depression to their personal credit histories. Many worked to keep their homes and their businesses going but when their businesses slowed down, many found themselves in foreclosures. They might have been able to keep their businesses running, albeit with lower profits, as their homes were foreclosed on. You can see the potential problems that would affect the business had the owner used his own personal credit history to establish accounts in the business name.
Personal or Business
But there’s more. The average consumer credit report gets just one inquiry per year and has 11 credit obligations, and on average, they break down into 7 credit cards and 4 installment loans. If a business owner uses his own credit, he likely doubles the number of credit inquiries, which can affect his scores. By using their personal credit history to get business credit, they’re not able to build their business score, which could help them attain critical business credit in the future.
Be sure to register your company with the credit bureaus since there are no legal guidelines that require it. Get those dynamics in place now so that you don’t run into problems as your business grows. Also, don’t underestimate the importance of complying with market requirements. This ensures greater odds of being approved for credit. It’s the simple things – a phone number, a license depending on the nature of your business, etc.
Many small business owners will look to business credit cards as they go about the business of defining their financial framework. Here are a few of the better credit card offers designed just for businesses.
Business Platinum Card from American Express OPEN
This American Express card is designed for those business owners with good credit history and who like the idea of all business expenses put onto one card. With this card, despite it being an American Express, you can carry a revolving balance. There are no foreign transaction fees and a low APR after an intro APR expires. There is a $450 annual fee and this is likely a better card for those businesses that have already established their credit. That said, having access to the impressive rewards is a reason many business owners opt for this credit card offer. If you travel, you’ll enjoy an annual $200 airline credit to cover incidentals each year too.
Capital One Spark Miles Select for Business
Another great choice for business owners, this versatile credit card offer allows for air rewards with a number of ways to earn points. A competitive interest rate and a highly rated team of business service representatives makes it a huge asset, especially for small business owners. You’ll have support that many say they never expected from a credit card company. There’s no annual fee and an intro 0% APR for purchases (it doesn’t apply to balance transfers) and because it’s Visa, you’ll enjoy the same safety mechanisms, including fraud protection, the Visa brand is known for.
You’ll enjoy the many opportunities for discounts, coupons and even opportunities for big bonuses in your points at the end of each year. Every purchase earns you an equal number of miles, but the true beauty is that you can earn a 50% bonus at the end of the year. No expiration, limitation, or restrictions makes it a great choice.
CitiBusiness World MasterCard
This MasterCard is designed for business owners who have good credit and are looking for a solid credit card that offers few fees and impressive rewards. There’s a 0% intro APR for purchases and you’ll earn bonus Thank You Points, too, which are universal, lending a versatility many credit card offers don’t bring to the table. Once you accumulate 10,000 bonus Thank You Points (usually after spending around $300), you can trade them in for a $100 gift card.
You’ll enjoy the Citi personal business assistant, lost and stolen card reporting, $50,000 Master Rental insurance coverage, quarterly and annual account summaries and you can even request additional credit cards for employees.