Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with @kinglevi, Levi King, CEO of tonight’s sponsor Creditera @creditera. Levi is the founder and CEO of Creditera, the first company allowing business owners to access their personal and business credit reports, scores, and alerts through a single account. With nearly 20 years of entrepreneurial and financial technology experience, Levi has started successful businesses in the manufacturing, hospitality, retail financial services, and franchising spaces. Prior to founding Creditera, he started Lendio, a matchmaking service that links commercial lenders and small business owners. For more info, visit Creditera.com
SmallBizLady: What is business credit and why does it matter?
Levi King: Business credit is a blind spot for many entrepreneurs, but the consequences of not understanding and managing it can be dire. A recent survey by the Federal Bank of New York showed that 72% of business owners who apply for a traditional loan get turned down. 72%! The main reason for denial was low personal and business credit scores.
Business owners need to understand that, like personal credit, your company has its own credit scores and reports, too. Lenders, vendors, potential customers and insurance companies use your business scores and reports to judge your business.
For young businesses, your personal credit will always matter. But you should start to build your business credit that’s separate from your personal credit as soon as you start a business. It’s easier to start off on the right foot than trying to go back in fix it later.
SmallBizLady: Why is the importance of business credit not more well-known among entrepreneurs?
Levi King: Until recently, it’s been hard to get your hands on your business credit information. Technology has helped improve this, but it can be complex. Bankers may deny someone a loan, but not really be able to explain how they’re judging the business. They may not even know. So, there hasn’t been much education or transparency. We’re trying to change that.
Plus, most credit media coverage only talks about consumer credit—which is great—everyone knows how important personal credit is now. We just need to do the same for business credit. It’s just as important.
In the consumer space, there’s about 97% consistency between each bureau’s data. So, you’ll probably be OK by monitoring one report, using a service like Credit Karma. But business bureaus lack that consistency. The data is much fragmented, so errors are more common. It’s like the Wild West—you need to stay on top of all your business reports.
SmallBizLady: Why is establishing business credit so important when it comes to starting a business?
Levi King: One of the biggest mistakes new business owners make is just using personal credit cards and funds when starting out. This can kill your personal credit scores. The very first thing you should do is open business credit cards that report to the business bureaus. They don’t report to your personal credit, so you can max them out and it’s not a huge deal. As long as you pay your bills on time, this also helps you start to establish positive business credit history. A business with strong credit can access 10 to 100 times more capital than a consumer. And small business typically uses their credit at 10 times the rate of a consumer. You’ll need access to that extra capacity that business credit provides.
SmallBizLady: How does business credit impact the approval process for financing a business?
Levi King: First, it’s important to know that business credit impacts much more than just getting financing and loans. Your business suppliers, vendors, customers and insurance companies can all look at your business credit when deciding to work with you and setting terms and rates.
For financing, taking care of your credit should be the first step in the process. Otherwise, you could waste a lot of time applying for funds—only to get denied or having to use financing with expensive rates. Lenders and creditors can look at both personal and business credit when pre-qualifying you or as a way to disqualify your application.
SmallBizLady: How do businesses find out their business credit score and where should they look?
Levi King: For business, there are three main credit reporting bureaus: Experian, Equifax and Dun & Bradstreet. Each creates their own reports and scores—and depending on what data they have on file—their scores can vary dramatically. On Creditera’s site, we provide access to both Experian and Dun & Bradstreet’s business reports and scores, along with personal credit scores from TransUnion and Experian. Both personal and business credit scores matter for small business owners—so we offer them in one spot.
SmallBizLady: What challenges did you experience as an entrepreneur that inspired Creditera?
Levi King: The first four businesses I started were all Main Street businesses. I had to deal with personal and business credit all the time. By trial and error, I figured out what works—but it was miserable. And right before starting Creditera, I co-founded a business that helped companies get financing. What I found was that a lot of business owners didn’t qualify for anything and there was no one to help them figure out what they could do about it. There was a serious disconnect, so I wanted to simplify the process for small business owners and make it easy for them to understand and manage their business’s financial health.
SmallBizLady: Why are resources like Creditera so important for the business community?
Levi King: Too many businesses fail in America. And having been a small business owner, I understand how many things a business owner has to juggle every day just to survive. Trying to figure out business credit and financing shouldn’t be another burden—but it is way too important to ignore. You don’t have to be an expert to use our site—we’ve made it easy to understand and build credit. This will make more business owners financially stronger, so they can get approved for funding, lower their costs, save time and can actually build the business they’ve dreamed about.
SmallBizLady: How does Creditera work?
Levi King: Signing up for our site is free and business owners can access their business and personal data in seconds. We don’t require a credit card, and it’s not some trial that expires in 30 days—you’ll be able to access this forever. After signing up, you’ll see a dashboard that shows all your business and personal credit scores in one spot. From there, we guide you on through what you can do to improve your scores and have tools to help you build your business credit. For people looking for financing, we also have a marketplace that matches you to different business products that you qualify for based on your scores. This can save a business owner a lot of time and frustration.
SmallBizLady: How has Creditera helped businesses succeed?
Levi King: By making it simple for business owners to build better credit and understand how to improve their financial health, we’ve helped thousands of them access capital and lower their costs. Margins are razor-thin for most small businesses, so every little bit helps. Qualifying for better loan interest rates or terms can the difference between thriving and having to close up shop. We ‘re hoping to help the millions of small business owners who could benefit from taking charge of their financial health.
SmallBizLady: What are things small businesses can do to start building their business credit?
Levi King: Here are two simple things you should do: 1. Like I mentioned earlier, open a business credit card that’s not associated with your personal credit. This will start to build a credit history on just based on how your business performs. 2. It may be stating the obvious, but should always pay these bills on time. This goes for anything your business pays for—financing, or commercial relationships, like vendors. Always pay these people on time or early.
If you’re in an industry that works with vendors or suppliers, you should also ask about setting up trade credit accounts with them. Trade credit gives your extra time to pay for supplies and services (net-7, -15, -30, or -60 days). Again, be sure to always pay these bills on time or early.
SmallBizLady: If an individual has bad personal and business credit, what are ways to build it back up?
Levi King: There are four ways that I recommend: 1. First, be sure to separate your business from your personal credit, so that you’re not hurting your personal credit trying to fund your business operations. 2. Check for errors on your reports—especially business reports. Mistakes are more common with business credit because it’s easy for data to get mixed up—even something as simple as the wrong industry classification could damage your score. Fixing errors can be a quick way to improve credit. 3. I can’t say this enough—pay all your bills on time. Understand your cash flow, make a plan so you know what you can spend and stick to it. 4. Regularly monitor your reports. Business credit scores can fall fast as new data comes in. You need to stay on top of it and ensure your data is accurate.
SmallBizLady: If you could leave small business owners with one final thought, what would it be?
Levi King: Running a small business is hard, but there’s more technology available than ever before to help make things easier. Explore what’s around you. Companies like Creditera can take some of the work off your plate and help you succeed. You never know what new tool or advice will be the game-changer for your business. Lastly, I’d say keep at it. Stay passionate and don’t give up.
If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter. Here’s how to participate in #SmallBizChat: http://bit.ly/1hZeIlz
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.