How To Get Vendor Credit
What are Vendor Credit Tradelines? How Do They Effect Business Credit
? So you have just started a business and you need a loanor do you? Chances are you will have problems getting a traditional start up loan for a new business. That is especially true if you do not have previous business experience, and a successful track record with a formerly owned business. All is not lost, however. Whether you are starting a home business, or need to operate out of a storefront, many of the beginning expenses are reasonable enough to fund yourself, and the biggest expenses can be obtained through vendor tradelines that let you "buy now, pay later."
Most of us are familiar with the concept of credit, and vendor tradeline accounts operate like a traditional "store credit" account. Very few stores still offer dedicated store credit cards with the availability and popularity of such global credit cards as "Visa" and "Mastercard." Vendors still give businesses store credit through vendor accounts though, and it is a very practical and useful way of getting funding. This type of funding is useful both at the beginning of a business and as it grows. It keeps assets fluid and more accessible while keeping a constant source of credit revolving and building.
Unlike personal credit accounts, vendor tradeline accounts do not charge interest rates, however. There is no revolving credit to charge an interest rate on. Accounts are due in a particular period. Late payments are charged a late fee, but not interest.
What Can You Use Vendor Credit For?
Vendor credit is available for many business needs. Ask the local office supply stores for a business account so that even your paper clips, and pens are on an account. Of course, you will ask supply vendors for merchandise for an account so you are not even paying upfront for your inventory. Even service vendors can provide your business with an account for single or recurring services. Get a vendor account for everything from maintenance to shipping services.
The thing that makes vendor credit such a perfect situation for new businesses is that they rarely require collateral. Vendor credit is an unsecured loan. When you are starting out your vendor may limit the amount of credit they extend to your business. The amount of credit offered may also depend upon your credit rating. Businesses that are just starting will not have any credit rating. Just like in a personal credit rating, no credit is often worse than bad credit when it comes to obtaining financing. Vendors are more lenient than banks or other lenders when it comes to prior credit, but may still offer a lower amount to start with. The amounts of credit your vendors offer will likely increase if your payments are on time.
Using vendor credit is the best way for a new business entity to develop an individual credit score that is necessary for more traditional bank loans in the future. Even with vendor credit, it is likely your business will, at some point, desire a normal bank loan for expansion and other operating expenses. Obtaining vendor credit is much easier than other types of business loans. So why is it so many business fail, even at this very simple means of financing? They fail because they do not understand the meanings of finance terms in vendor credit accounts. They do not understand how to handle their accounts to maximize their credit improvement.
Vendor Credit Terms
The standard credit term for vendor tradelines is 30 days, although some may stretch as far as 60, and 90 days. What that means is that payment is due on or before that many days. Like your personal credit cards, payments made before the due date will not incur extra changes, and will not reflect badly on your credit rating. You may also see additional time periods reflected along the bottom (or similar area) on your vendor bills. These show past due amounts and how much of the balance is late at each specific interval. The greater the amount of time your account is delinquent, the greater the penalty fee, and the worse it is for your credit. However, bear in mind that any delinquency is bad for your credit.
Be careful when you first open a vendor tradeline account. Know what the specific terms that vendor requires is so you do not accidentally miss a payment date. While the average is 30 days, some vendors give credit in much shorter increments; accounts as short as 7 to 10 days are not unheard of. Not keeping track of the timing of vendor accounts is a very common trap business owners fall in to. If you have trouble keeping track of your various accounts then you should hire somebody to keep track of them for you. Your good credit rating depends on it.
What You Need to Obtain Vendor Credit
In order to secure any type of loan, including vendor credit, in your business' name it will need its own EIN number. The EIN number (employer identification number) acts like your personal social security number does for you. It gives you a taxable identity, as well as an identity that is financially trackable by credit agencies. Do not let the name of it fool you. You do not have to have employees. You need an EIN number even if you are the only person involved with your business. YOU are your business' employee. Getting an EIN number is simple. They are available on the IRS website. You can fill out the form online and get your number immediately.
What to Look for in a Vendor Account
All vendor accounts will help your business get started and keep moving forward. However, to improve credit worthiness you need to make sure that the vendors you do business with report all payments including on time transactions. Vendors that only report late payments do not help build your credit up. They only tear your credit down if you are late.
The most important thing do to when using vendors to improve credit while financing your business is pay on time; whether a vendor reports good payments, or not, they will definitely report bad payments. Not paying on time destroys what you are trying to build up. Hiring a finance counselor will help you keep track of what you need to obtain vendor credit as well as keeping your payments on time. They are invaluable business assets for building and maintaining credit. A business finance counselor can also show you the many opportunities available to you for other forms of credit and point you in the right direction to get it.
Copyright (c) 2010 Jon Preston
by: Jon Preston
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