Establishing Business Credit

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Establishing Business Credit

Kevin Suksi
Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes

We have an LLC which is about 9 months old and are trying to establish business credit. I have gathered from other postings that you want to try to get 5 trade lines established and that the business must be at least 2 years old in order to get a line of credit from a bank.

I'm wondering if anyone has any suggestions.

So far we have:

1 - established a line at Home Depot for the business for $10,000
2 - applied for an AMEX in the business name, denied due to short duration being in business
3 - applied for discover in the business's name which is currently pending

I have an 800 personal FICO.

I've also gathered that we should put the utilities in the business's name on the next flip. We do have a DUNS number established for the business; I believe this happened when we got the home depot account.

Does anyone have any advice as to where some good places to get trade lines might be? I'd like to minimize how many applications I submit because too many inquiries can damage your profile.

Thanks in advance for any replies. I value the insight provided in this forum very much.

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Account Closed
Real Estate Investor · Dearborn, MI · Member since 2009 · 56 posts · 40 votes
16y

Kevin,
I have touched on this topic before and I'm currently working on building business credit. There are several things to consider when building credit, and the length of tiime it takes to achieve it.

To start did you provide a EIN to Home Depot or was it your SS#? Home Depot is a level 2 teir and is extremly difficult to achieve a business line without a PG. Are they reporting to DnB or experian or are they reporting to your personal credit profile?

A duns number is something that you have to apply for, its not something that is given. You must go to their website and apply for this number which can take up to 30 days to get.

As far as starting to build credit without a PG you need to established 5 trade accounts which typically are net 30 terms.

Some companies that offer this our:
uline.com
quill.com
granger.com
northerntool.com
nebs.com ( they might not report to DnB anymore would verify before purchase)

Their are several more that are more suited for rehab/outdoor work as well.

To start with these companies you will have to a business address that is not your home, your cell phones listed under a business directory or under 411 directory.

Make a purchase for 25- 50 dollars at 2 accounts first then wait 2 weeks and make another 2 purchase at different trade accounts.Making sure that the invoices are paid 2 weeks before due date. You will have to keep doing this before you even get a paydex score usually takes anywhere between 4-6 months. There is another way to get a paydex score faster but you have to pay for this service through DnB.

We can go into further detail on this tomorrow when we meet for lunch.

Hope this helps a little.

Looking forward to meeting you tomorrow.
Greg

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  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    PS I know this topic has been posted before, but market conditions do change and there hasn't been a discussion in the past 6 months or so.

    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    16y

    i know that many banks have tightened up and will not lend to REI (as they are deemed to be a high-rish industry).

    my current employer won't touch them with a 9234943854095 foot pole. my previous employer would not as well.

    that being said, there are lenders for every situation. it sounds like you are doing the right activities. i've heard places like staples are a decent start as well.

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    Thanks Josh for the reply. I would note also that we have the business listed as residential construction for tax purposes rather than real estate construction. We do flips, but we thought banks would be more receptive to construction than to real estate.

    We'll try Staples too. Thanks for the suggestion.

    0Reply
  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    16y

    First unsecured credit I had for my LLC was Office Depot.

    :cool:

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    Richard, I applied at Staples and they are going to give my LLC a line if I give a personal guarantee. This still builds the LLC's credit, doesn't it?

    0Reply
  • Account Closed
    Real Estate Investor · Dearborn, MI · Member since 2009 · 56 posts · 40 votes
    16y

    Kevin,
    I have touched on this topic before and I'm currently working on building business credit. There are several things to consider when building credit, and the length of tiime it takes to achieve it.

    To start did you provide a EIN to Home Depot or was it your SS#? Home Depot is a level 2 teir and is extremly difficult to achieve a business line without a PG. Are they reporting to DnB or experian or are they reporting to your personal credit profile?

    A duns number is something that you have to apply for, its not something that is given. You must go to their website and apply for this number which can take up to 30 days to get.

    As far as starting to build credit without a PG you need to established 5 trade accounts which typically are net 30 terms.

    Some companies that offer this our:
    uline.com
    quill.com
    granger.com
    northerntool.com
    nebs.com ( they might not report to DnB anymore would verify before purchase)

    Their are several more that are more suited for rehab/outdoor work as well.

    To start with these companies you will have to a business address that is not your home, your cell phones listed under a business directory or under 411 directory.

    Make a purchase for 25- 50 dollars at 2 accounts first then wait 2 weeks and make another 2 purchase at different trade accounts.Making sure that the invoices are paid 2 weeks before due date. You will have to keep doing this before you even get a paydex score usually takes anywhere between 4-6 months. There is another way to get a paydex score faster but you have to pay for this service through DnB.

    We can go into further detail on this tomorrow when we meet for lunch.

    Hope this helps a little.

    Looking forward to meeting you tomorrow.
    Greg

    4Reply
  • Account Closed
    Real Estate Investor · Dearborn, MI · Member since 2009 · 56 posts · 40 votes
    16y

    Sorry to psot again. You have to make sure when you apply for business credit who they report too. That is very very important. But to answer your question YES staples uses a PG and reports to DnB and experian.

    Greg

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    Greg thanks for the reply and looking forward to meeting you and Erika today. As for the DUNS number - we never applied for one, but we went onto D&B's website and asked what our number is, and they emailed one to us.

    With HD and Staples, we gave them our EIN for Michigan Starter Homes and signed off on a personal guarantee.

    0Reply
  • Account Closed
    Real Estate Investor · Ephrata, PA · Member since 2010 · 58 posts · 2 votes
    16y

    Isn't it the goal to stay away from PG if you have a LLC? I know it is hard to obtain business credit w/o a PG, but I guess the whole point of a LLC is to separate the risk from person (PG) from the entity.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Very difficult to do, unless you have a well established business with a good track record.

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    @Steven - yes that is the point, but I think there has to be a transition phase - I don't think anyone will give you unsecured business credit for an LLC you formed yesterday - my thought process is:

    1 - establish credit accounts for the LLC (most creditors will not do this for a young LLC without a PG)
    2 - purchase goods on credit using the PG, but recording the payment stream under the LLC's EIN and DUNS number
    3 - after some time, apply for credit without PG once said payment / credit history is established for LLC
    4 - once LLC has 2 years of credit history, and ~hopefully~ credit markets improve, apply for business LOC

    0Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    16y

    Is there an efficient way to tell which companies report to each of the different business credit bureaus? D&B, Experian, and Equifax seem to be the big three. I have called all of the vendors we have trade lines with and they told me who they report to, but some of the calls didn't make me confident that the operator knew what they were talking about.

    Has anyone been successful getting unsecured lines $50k+ since the credit meltdown? We have just been using private money because I gave up on the banks auto denying lines simply because we are in the real estate industry.

    Does anyone know how to get the personal credit bureaus to update titles for positions held, aliases, and such? I have sent them form letters, but they seem to ignore them. Should I sent a formal request via certified mail or something to get their attention?

    I don't want to thread hijack, but I figured this fit with the idea of building business credit and I hated to start a new post.

    0Reply
  • Katrina Derrico
    Atlanta, GA · Member since 2010 · 7 posts · 4 votes
    16y

    @ Brian - generally the credit bureaus will update your info if you send them the info - but most definitely will when you apply for credit AND the creditor enters the new info when they pull your credit. (This is where they get most of the inaccurate info we seen most in addresses and name variations from input process - but it serves to update employers etc..)

    @ Kevin - yes you can build business credit w/o PG - it is a process and it does take time. I have seen it happenn within a year, sometimes less, most times more.

    With a personal score of 800 you are a shoe-in for most credit lines - but be careful - you can loose everything if the market turns or something unfortunate happens to the business. The point of having a corp or LLC is to keep personal liability limited - signing a PG defeats the entire purpose.

    Try searching these keywords:
    four tiers of business credit
    Net30 Accounts (no space)
    Initial revolving business credit lines

    I am in the same boat as you with a new company (2 months old) - maybe we can start a thread with creditors we find that report and give trade lines without a PG?

    0Reply
  • Elisha Lowe
    Homeowner · Philadelphia, PA · Member since 2010 · 123 posts · 66 votes
    16y

    Great thread and one of the questions on my mind recently. Thanks everyone.

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    Katrina, I think that's a great idea to make a thread of the companies who will provide business credit without PG.

    Since the post a few months ago, we did get a discover card in the business's name without a PG so we could add them to the list.

    0Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2010 · 122 posts · 17 votes
    16y

    Kevin,

    The flip side of the coin would be to establish a banking relationship with a community or regional bank. I have no clue what your financial situation is, however I do know that many community banks are still lending on real estate. This is only a suggestion. I know you are looking for an unsecured line of credit but the reality is that we live in a world that frowns upon secured debt much less unsecured debt. So my advice would be find a lender that will give you a line of credit secured by one of your properties. I would advise against securing it with your personal residence. Here is another advantage of using bank financing. You get a better rate and better terms. Not all cases but most. If your cash flow position is so short-term meaning 30-60 days your receivables keep turning over (which is good) then you may want to continue down the route you are going. It all depends upon your business and what you are willing to compromise. Good luck.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y
    Originally posted by Katrina Derrico:
    ... maybe we can start a thread with creditors we find that report and give trade lines without a PG?


    See link below for a post that does this already.
    http://www.biggerpockets.com/forums/12/topics/37432-building-business-credit
    1Reply
  • Lance Schaefer
    Real Estate Investor · Central Iowa, IA · Member since 2010 · 17 posts · 0 votes
    16y

    This is a great thread. I am a new LLC and have had problems getting credit/hard money and without a PG.

    There is a firm that contacted me and told me that for $997 up front and $179/month they would loan $35k and then 4 months later advance 50k and so on every 4 months to build a credit score and file for the LLC. They handle all paperwork and filings and build my score so that at the end of 2 yrs I am able to get near a million for a loan. Sounds interesting but too good to be true.

    The whole purpose of my LLC was to operate a legitimate RE business and separate it from my personal crappy credit. I will keep following this interesting topic. Thanks.

    0Reply
  • Kevin Suksi
    OP
    Real Estate Investor · Dearborn, MI · Member since 2009 · 55 posts · 7 votes
    16y

    I think the unfortunate truth about this may be that we're going to need some improvement in credit market conditions.

    We were able to get a cash-out refi on a rental property this week, but we had to guarantee it personally and it took 3 months to get through underwriting.

    Our plan is to approach the bank for a small unsecured line when our business is two years old - which really isn't that far away.

    We currently have a HELOC, our personal account, 2 business checking accounts, and now this investment mortgage all through the same bank. Our thought is to establish strong payment history in all the accounts, show the 2 years of existence of the business, plus all of the trade accounts, and hopefully all of this combined will build a strong enough business case for an unsecured line.

    0Reply
  • Brooks Conkle
    Flipper/Rehabber · Mobile, AL · Member since 2010 · 138 posts · 55 votes
    16y
    Originally posted by Bryan Hancock:
    Is there an efficient way to tell which companies report to each of the different business credit bureaus? D&B, Experian, and Equifax seem to be the big three. I have called all of the vendors we have trade lines with and they told me who they report to, but some of the calls didn't make me confident that the operator knew what they were talking about.

    Has anyone been successful getting unsecured lines $50k+ since the credit meltdown? We have just been using private money because I gave up on the banks auto denying lines simply because we are in the real estate industry.

    Does anyone know how to get the personal credit bureaus to update titles for positions held, aliases, and such? I have sent them form letters, but they seem to ignore them. Should I sent a formal request via certified mail or something to get their attention?

    I don't want to thread hijack, but I figured this fit with the idea of building business credit and I hated to start a new post.


    @ Bryan -- we've actually had a line closed 'just cause' --- they just wanted to have less available credit out there --- nothing in our situation has changed --- still doing the same successful deals.

    @Kevin -- We got a small credit card through Key Bank -- I believe a PG though (all of our stuff is, we're about 1.5 years old)

    @ALL -- What are your thoughts on the following: Every bank that I speak with is terrified of real estate (well most). But we as investors know that there are some INCREDIBLE deals out there right now.
    What if the banks really got educated on their local markets?
    What if they agreed to continue lending to investors knowing that prices are super low?
    What if they did it only if it was at a super low LTV?
    And what if they did it at 10% minimum interest?

    I think in this scenario all of our local banks would make an insane amount of profit. I would as well, considering I could do more deals and my cost of capital would dramatically decrease (I currently pay minimum 15% to private lenders)

    Thoughts?

    0Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    16y

    I have a LOC with Key Bank too...the terms aren't exactly appealing compared with what my private lenders give me so I don't use it.

    Frankly I have given up on the banks. They are all staffed by a bunch of blathering idiots and their sole function of underwriting risk properly is what got us into the current mess. Approaching the capital markets DIRECTLY and bypassing the banks is the only prudent course of action right now IMO.

    Oh yeah...I have had lines closed too even though we are stronger financially now that we were when the lines were opened.

    1Reply
  • Brooks Conkle
    Flipper/Rehabber · Mobile, AL · Member since 2010 · 138 posts · 55 votes
    16y

    Actually a great point. Banks seem to be pawns of federal regulation (get everyone in a house that you can even if they can't pay! no wait, don't extend credit to this type of business even if they are in great shape!)

    Private market, you're right. All about that network. I need to do a much better job about shaking hands and getting into the circles of where the people that can lend me money hang out.

    My latest private lender lent us $115,000 to renovate a house --- lent us 100% of the money --- and I met him because I decided to audition and be in a local theater guild play (bucket list thing) --- Crazy!

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    16y

    Banks aren't touching any of this now or in the next few years.

    More distressed residential and commercial is hitting the market.

    As a couple of VP's of local and regional banks have told me.

    Bring in a request for a unsecured line or construction loan to the committee for a vote is the fastest way to get you CANNED.

    They have too much of this crap defaulted on their books.

    They want NO RISK lending to offset book losses in the future so that the FDIC doesn't shut them down for not having enough capital and loss reserves.

    Private money is the way to go.If the project and numbers make sense they will do it.

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    0Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    16y

    There is no such thing as a NO risk loan. The idiot bankers are the ones that got us in this mess and now they are killing the small business economy because they are trying to design the risk out of the system. Trying to design the risk out and chase yield is EXACTLY what got us into this mess to begin with!

    0Reply
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