From the creditor’s point of view, it is all about risk. Creditors want to make sure that you and your business are a reasonable risk before issuing you credit. Business credit rating agencies, such as Dun & Bradstreet, TransUnion, Experian and Equifax, have complex compliance checks that they use to gauge a business’s credit worthiness and to determine risk. Checking to make sure you are in compliance is an important step that is all too often overlooked by businesses seeking credit.

There are hundreds of factors that affect business credit compliance, but here are some of the more common ones.

• Business plan

  Creditors know that entrepreneurs who are serious and represent an acceptable risk will have spent a fair amount of time planning every aspect of their business from its structure to its marketing plan. If you don’t have a professional and thorough business plan, you need to develop one before you seek business credit, not after. Many creditors will not even consider your application until they have reviewed your plan.

• Employee Identification Number (EIN)

  By applying for an EIN with the IRS, you are sending the message to potential creditors that you are serious about your business. In addition, you will be taking an important step toward separating your personal and business credit. Once you have an EIN, when applying for business credit, in most instances you will not need to use your social security number. In addition to the EIN, which is the federal tax identification number, you also to make sure you apply for a tax identification number from the state in which your business operates.

• Business Bank Account

  Creditors look for evidence that a business is more than just a hobby. You might be surprised at how many small businesses have not taken the simple steps to keep separate their personal and business finances, beginning with their bank accounts. Failure to do so indicates that you have not really committed to your business. The intertwining of personal and business finances automatically sends up a red flag to creditors.

  You need at least one business bank account that can serve as a reference when you begin building business credit. But just having a business bank account is not enough. In order use it as a bank reference when applying for business credit, you want to maintain an average daily balance of at least $7000 to $10000 for at least three months. Depending upon your business and how long it has been in operation, it might be difficult to keep this kind of balance. Before applying for business loans, you might want to loan temporarily your business enough cash to maintain this balance.

  Needless to say, if you consistently have returned checks because of insufficient funds in your business bank account, your chances of being approved for business credit are greatly diminished, if not completing gone. Remember, creditors evaluate the level of risk associated with each loan and nothing says risk like a series of returned checks.

• Business Address and Phone Number

  Here is a big mistake that is often overlooked by new business owners. Sometimes they are trying to save money by starting their business in their home, and there is certainly nothing wrong with that. But some mistakenly try using a P. O. Box or their home address and their home phone for business.

  • Business Address

    Do not use a P. O. Box for your business because this immediately makes your business suspect. It calls into question the validity of your business since many fraudulent businesses have used P. O. Boxes. It does not matter that you are a paragon of integrity if you are perceived otherwise.

    Also, if at all possible, you want to avoid using your home address for your business. Of course, sometimes you may not have an alternative at the beginning, but keep in mind that creditors may see this as yet another indication that your business is a high risk. Too often home businesses are equated with hobbies and lack of commitment.

    Whatever address you do use, be sure to use that one address consistently on every form, document and application. For example, make sure you use the same address with the IRS as you do with your local office supplier. When you have more than one address, such as a home address that you have used for business, in addition to another actual business address, creditors may become cautious and question the credibility of your business.

  • Business Phone

    Along these same lines, if you use the same phone for both business and personal calls, creditors will not take you seriously. Would you really want to do business with a company that does not have its own designated phone line? Consider the impression you get when you call a business and hear a casual, informal greeting, such as “Hi. How’s it going?” Most likely you will begin to question the professionalism of the business. By contrast, if your call if greeted by the name of the business, you are more likely to consider the business a legitimate one. This all speaks to creditability.

    And what about cell phones? We all love them and think we can’t live without them. But a cell phone may not be the best choice for your primary business phone. Just as a P. O. Box sends up red flags about the legitimacy of your business, so does a cell phone. This is not to say, of course, that you cannot use cell phones in your business, but it does mean that you will improve your overall creditability with creditors if you have a dedicated land line for your business in addition to your cell phone.

• Licenses and Permits.

  You need to make sure that you have applied for all appropriate licenses and permits. These include, but are not limited to licenses in the city or municipality in which you plan to do business and permits based upon the type of business you are operating. For example, if your business is in food service, you need to make sure that your business is licensed with the appropriate health agencies. Failure to procure these licenses and permits may send up a red flag to creditors.

• Directory Listings.

  Do not overlook directory listings, assuming that they are not that important. In fact, creditors will check these listings as another means of verifying the overall legitimacy of your business.

• Financial Statements.

  At the very least, you need to have a balance sheet and an income or profit and loss statement. These financial statements can go a long way toward illustrating your credit worthiness. Generally, you want to have available financial statements for the past two years. Of course, if your business is new, your financial statements will be limited to the amount of time you have been in business. Here’s a tip. If you had been operating your business as a sole proprietorship, but only recently formed a corporation, LLC or other business entity, it is perfectly acceptable to use the financial statements from the sole proprietorship as evidence or the business’s financial history.

The above list is not inclusive by any means, but it does give you a good idea about some of the basics that need to be addressed before you begin applying for business credit. As a further indication of the complexity of compliance, consider that Dun & Bradstreet says that they use “over 2,000 separate automated checks, plus many manual ones, to ensure the data meets our high quality standards.”