Don't Mess Up!
SEVEN COMMON COMMERCIAL CREDIT-BUILDING BLUNDERS
1) Failing to establish a D&B DUNS® number and "complete" profile for your company
Even brand new businesses that have yet to get their feet wet can get business credit — whether from vendors, suppliers, credit card companies, or equipment/vehicle financiers — so long as they start by creating a solid business credit profile with D&B and the other commercial credit reporting agencies. Just "getting a D-U-N-S® number" does not guarantee the D&B profile is complete. You need to have all seven of the "Super Seven Elements" in place to have a complete profile, and that usually doesn't happen when you order a free DUNS number online.
2) Failing to get an EIN number in the company name and at the company address
Your company is going to need an EIN number. While you probably won't need it right away, but it will eventually need to be included on some of your business credit applications. You'll also want to have that number handy when creating your business bank account. Establishing your EIN number helps to validate your business, and being established at a date close to your official start date sends a strong signal of savvy (and responsible) business management. You can order an EIN online at no cost at www.IRS.gov, and you'll have the number within about 10 minutes.
3) Failing to establish a business bank account in the company name
You should not make a single purchase for your business until you have created a business bank account. You'll need your corporate registration and EIN to do so, as well as your personal proof of identity and some cash you can deposit to activate the account. Many of the most basic products and services you'll need to start your business will get auto-reported to one or more of the commercial credit bureaus, but usually ONLY if those purchases were paid using a business bank account, check, credit card, or debit card.
4) Attempting to use a virtual address, mail-drop, or PO Box as your physical address
Business credit reporting agencies require the physical address of your business operations to be associated to your account. If you need a separate "mailing" address, then yes, a virtual mail-drop or PO Box is fine, and it can be designated as such in the business credit profile. You'll still need to show an address where your business actually conducts active operations. There are very few acceptable exceptions to this rule. Purposely misrepresenting a virtual mail-drop as a physical location is one of the main reasons why a company's commercial credit gets designated as "higher risk".
5) Failing to have all scores and ratings in place before credit applications begin
It doesn't matter if you have a perfect Paydex® score and a dozen beautiful trade payments in place, if your report is missing the other five required D&B scores and ratings, you may find yourself coming up short. Many credit applications are processed through automated systems, such as D&B's "DNBi Risk Management". These automated systems allow the creditor or funding source to assign specific criteria that must be met in order for you to get an approval. If any criteria isn't met, you'll see one of those awful computer-generated decline notifications pop up, or a message saying "a decision can't be made at this time and a further review is necessary". You may still get an approval, but now a human is actually going to need to manually pull your D&B (or other bureau) credit file to see if you can qualify.
6) Failing to have consistent data across all platforms
EVERYTHING needs to match what is in your D&B file. That includes the business name, address, phone number, principal's name, and any other pertinent data that may be required on any in-person or online application you may process. That includes your website, printed materials, online presence, vendors, bank accounts, credit cards, and every application or form you submit. If the information isn't accurate in the D&B report, update it there before you open any new accounts or apply for new credit. You can update your D&B file for free at http://iupdate.dnb.com. In general, updates can get completed in about 10-15 days (government contractors about 3-5 days). Some updates could take up to 30 days to complete, especially if a D&B agent needs to verify data and can't reach you to get the information they need. Updated information will show in the global database within 21-30 days.
7) Failing to remove "identity theft" alerts/blocks/holds from your personal credit
It doesn't matter how good your commercial credit scores and ratings are if your potential creditor can't readily complete the most basic identity verification on the person who is submitting the credit application. Since 98% of verification is completed by searching for the principal's personal credit identity (not an actual credit inquiry) this path has to be wide open and clear of any obstructions. If you have ever put a hold or freeze on your personal credit profile due to possible identity theft, you'll need to start the removal process as soon as possible. If you have ever worked with a third party agency to make improvements to your FICO score, you should check your personal credit file to make sure they didn't initiate any holds, blocks, or freezes (a fairly common practice). If you find your personal credit file has been locked down, you can contact each of the bureaus and request the lock be released, a process that can take up to 90 days to complete.
Protect Yourself (and your business)
It is crucial that you only provide accurate and verifiable information about your company to D&B® and other agencies.
Conspiring to knowingly provide false or misleading information to a federally insured bank for the purpose of obtaining lines of credit or bank loans is an offense punishable by fines up to $1,000,000 and prison terms up to 30 years.
You can visit the FBI's website and view the Financial Crimes Report to the Public (Fiscal Years 2010-2011), and you will see that FBI investigators elicit the assistance of many federal agencies, task forces, and even third party providers when gathering the information needed to punish those who break the law.
Below is the final paragraph from that report. This is public information.
The FBI has also worked with numerous organizations in the private industry to increase public awareness about combating corporate fraud, including the Public Company Accounting Oversight Board, American Institute of Certified Public Accountants, Association of Certified Fraud Examiners, and the North American Securities Administrators Association, Inc. These organizations have been able to provide referrals for expert witnesses and other technical assistance regarding accounting and securities issues. In addition, the Financial Crimes Enforcement Network and Dun & Bradstreet have been able to provide significant background information on subject individuals and/or subject companies to further investigative efforts.
Your understanding of the law regarding bank and credit card transactions is crucial, even more so if you are being advised that something is perfectly legal when, in fact, it is not. If you knowingly participate in providing false information to a bank or other financial organization, even if you are not the one who actually completes the activity, you can be charged and ultimately convicted of bank fraud and conspiracy to commit bank fraud.
Per the U.S. Code, Title 18, Part 1, Chapter 63, Subsection 1349 --
Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy.
It is imperative that you provide only accurate information about your business that can be verified by D&B® and other agencies, not only because it helps to insulate you from having to wear the expensive jewelry in the photo above, but because it paints a cleaner picture of your business and its activities and history.
Your ability to build a strong, comprehensive, credible business credit profile is dependent on your willingness to work toward that ultimate goal, and deception in practice or action should not be a part of any good business owner's Standard Operating Procedure.
By definition, shelf corporations are companies or corporations that are created and left with no activity – literally put on the “shelf” to age – and then sold to a person or group of persons who want to start a company without going through all the usual procedures and processes. Typically, these companies are viewed by D&B® and other credit resources as having no need of credit and are shunned by lenders.
In most cases, D&B is quick to identify shelf corporations for exactly what they are — a “flash-in-the-pan” strategy to achieve credit and then dodge the responsibilities that accompany the debt. Their 175+ year history of credit management has proven time and again that these types of strategies will typically leave lenders and creditors holding the bag for the funds they have provided.
It is for this reason that D&B is quick to research companies they believe are shelf corporations, downgrade their credit potential, and pull the switch in the rail yard before the lenders get taken for a disastrous ride.
There are a vast array of specialized businesses who promote their services in the shelf corporation field. They create fictitious corporations, put them on the shelf to age, and then wait for a buyer to come along who has a need for the business. Fortunately for them, their client base is exploding due to credit coaching companies who suggest their clients take this route to achieve credit success.
Oftentimes, these companies work hand-in-hand to promote and sell each other’s services, but neither will honestly advise their clients of the risk they are assuming. And while there are a number of reasons for purchasing a shelf corporation, legitimate or otherwise, all of them come under intense scrutiny.
Some purchase to avoid the mass of complicated paperwork, while others purchase to bid on projects that require a business be a specific age. Many people purchase a shelf corporation for the purpose of attracting consumers or investors or to obtain corporate credit. But whatever the reason, it is generally considered an attempt to misrepresent the actions and operations of the business and is, for the most part, doomed to failure.
It is questionable whether a shelf corporation will actually improve access to capital, since creditors and investors usually research a company’s history as part of their due diligence process. If D&B® or any of the other credit bureaus learn about the company being “under new management”, they will list it on their reports, effectively “re-aging” the company to the date of the new management, which defeats the whole purpose of purchasing the aged company in the first place. In order to keep the creditors and credit bureaus from figuring out the truth, a certain amount of re-invention or misrepresentation must occur, and here is where the trouble starts.
Companies who sell shelf corporations or promote their use to fraudulently obtain corporate credit simply will not reveal to the purchaser that these misrepresentations can land their clients in more personal and professional legal turmoil than they are bargaining for. The legal ramifications are clear, though. And as a business professional, you are expected to understand those ramifications.
Per US Code, Title 18, Part 1, Chapter 63, Sec. 1344 – BANK FRAUD
Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
Even if, by some luck, a shelf corporation can successfully worm their way through the dark tunnels and manage to attain credit, it is usually short-lived and ends in heartache.
Once the fraud is discovered by D&B® or lenders, the authorities are quick to act. The creditors are notified, existing lines of credit are cut, the recommendations will be downgraded, the D&B® report is placed into Severe Risk status, and the small business owner is left facing a mountain of debt, no means to recover from it, and cannot get any more credit to help them out of their dilemma.
They will also oftentimes face incredible legal battles, including lawsuits, judgments, and possible prison time because their LLC status cannot protect them from their fraudulent actions. In many cases, their own personal credit will be impacted, as well, all because they were not provided truthful, factual information in the beginning. By the time you realize how bad it is, the "snake-oil" salesman will have taken your money and moved on to the next victim.
Most people struggle with achieving credit simply because they do not understand how to do so in a progressive and responsible fashion. You should understand the ramifications of trying to subvert the system or fraudulently reach an end goal.
We have vowed to our company, our clients, and to D&B®, that we will not knowingly engage in the misrepresentation of any data. We simply will not put our clients, their companies, their futures, or those of our own company, under this type of risk. We do not work with shelf corporations. We thoroughly research each company to make sure it is an active and functioning business and require that all documentation is in order before we proceed.
LESSON: Use acceptable processes and educate yourself so you can effectively manage your business credit profile for the years to come. Keep away from companies who offer get-rich-quick strategies. If you try these types of programs, eventually you will reach the end of the track, and you will be standing there alone to face the destruction.
Rings of Fire
Linking your company’s positive payments to your D&B® report can boost your credibility by as much as 90%, but attempting to do so through a non-verifiable transaction or “trade ring” vendor can be devastating to your business credit profile. If the transaction or vendor cannot be verified by D&B®, this could bring your profile under unnecessary scrutiny and could harm both businesses — possibly embroiling you and your business in extensive, and expensive, legal battles.
Adding vendors and suppliers can be extremely beneficial, but each of these references will need to undergo a multi-step validation before even being considered as a possible candidate.
D&B® looks very closely at any potential trade references to make sure they will pass all stages of the validation process. They will check a variety of factors — from their industry, to their physical location, to their own D&B® report status — even delving into your vendor’s state or federal documentation. D&B® does this because it is their job to ensure any data they input into your report correctly reflects true payment habits, since this is the basis for any additional credit lines others may extend to you.
Oftentimes, business owners who have no credit history will ask friends or relatives to manufacture positive payment experiences in an attempt to portray non-existent credit limits, thinking this will help them to achieve higher approvals or build their credit profile faster. These fraudulent attempts seldom make it through D&B®’s tight net. Most will get declined in the preliminary processes and go no further.
D&B®, however, does not just blindly discard the information they have just attained in the process. They hold onto every little tidbit they have learned as part of their extensive data gathering network, and then watch for patterns or trends among vendors or vendor types. They draw parallels between these businesses and their clients. If these parallels begin to trend toward activity that could be perceived as fraudulent, D&B® may investigate further to see if these businesses are acting as a “trade ring” for each other.
Trade rings are companies who provide false or inflated credit histories about their friends, relatives, colleagues, or business associations in an effort to portray a rosy image of an otherwise not-so-impressive picture.
They will do this for a number of businesses within a certain circle, whether that circle encompasses just a few close friends or a hundred or more associates. They can do this in many ways, but few are successful. There have been companies who qualify as a viable vendor who boast of an ability to provide a positive payment history to D&B® “for a nominal fee”.
There are people who form multiple businesses solely for the purpose of reporting good credit from one to another. There are companies who take advantage of those who are less knowledgeable in this area to convince them to provide misrepresentations, ultimately causing irreparable harm to both their business reputations. It is almost as if they think they are the first to have conceived this ill-fated technique.
Fortunately for the bulk of the business credit community as a whole, 175 years of data collection has taught D&B® many hard lessons along the way. They have been burned by these types of strategies and now block them time and time again. Like the internet wizards who can spot a scam from a mile away, D&B® can usually identify a potential tactic. They have made it their business to keep the foxes (crooks) from being able to rob the proverbial hen house (creditors).
For every sly, manipulative trick out there, D&B® has continued to tighten the net, placing more strict guidelines in the paths of honest business owners who are struggling to get the simplest of legitimate transactions placed into their files. What some shysters may think is the newest trick of the day turns out to be another hoop that the average Joe will need to jump through in order to succeed.
Trained to spot these tactics and irregularities that can throw up the red flags of risk in D&B®’s eyes, we know if we can see there is a potential problem, there is absolutely no doubt that D&B® will see it, as well. When they do, they will roll out the roadblocks to your success.
D&B may make pre-determinations that a vendor or transaction is illegitimate or that you are attempting something untoward — so you should avoid potential roadblocks.
Reality is – we live in a cruel world where innocently using one another to report on your mutual business experiences can draw suspicion, even if everything is 100% on the up-and-up. If the transaction is perceived to be fraudulent, both companies can be flagged as Severe Risk and completely blocked from making any possible forward progress.
Like an infection, this red-flagged status can also spread to other businesses inside and outside the circle and has the potential to be catastrophic, even for other legitimate businesses who have reported verifiable transactions on your behalf.
There are a multitude of companies out on the market that will promise anyone seeking credit approvals the results they dream about. But in your rush to believe you have finally found a company that can answer all your business credit prayers – before you GIVE them your hard earned dollars — TAKE something for yourself. Take your hand off that mouse button, take a short step back, take a deep breath, and take a moment to listen to what they are really saying.
Every small business owner has seen the eye-catching ads, visited the perfectly designed websites, and listened to the high-pressure commissioned salespeople who seek to sell their most recent game-plan for your financial future.
There are very few companies that will tell you the bold and honest truth right up front, even if their honesty means they will never get your money. As a small business owner, you need to spot some of the key words that you find in these advertisements and understand their hidden meanings.
These are eye catching words, ones that will make you sit up and pay attention, as is their whole intention — to lure you in and hope you get so caught up in the glitter so that you don’t read the fine print.
Google search “small business loans” and you will find page after page of companies that are willing to “pre-approve” your business for credit or “help you find the funding you are looking for”. They will go as far as “guaranteeing” you an unrealistic amount of money in a very short time. They are preying on your desperation.
After all, you wouldn’t be looking for credit if you weren’t needing it… and you wouldn’t be searching the web for it if you could get it from your hometown bank down the street… and who doesn’t like the idea that someone else will do all the hard work for you or that you can get it for practically nothing… and we all have the naturally impatient beast inside that wants it, and wants it right now.
There are three main reasons for enhancing your business’s credit report:
1. to separate business credit from personal credit
2. to show your company can handle its own debts and credit, and
3. to achieve more credit!
While the majority of banks may require a personal guarantee on a loan or line of credit, there are many financial institutions who will extend business credit based upon the creditworthiness of the business name, but only if you have a sound and established D&B® report. When you look for a company to assist with building that report, you want to look past the catch-phrases and get to the strength of the promises.
OUTLANDISH PROMISES — If the ad is saying they can get you any large sum of approval in a specific time frame, BEWARE of unrealistic expectations. Only the creditors and their underwriters can promise this, and most of them won’t. Only a fool would promise you any credit at all without performing their due diligence. Contributing factors include where your business is starting from, how old your company is, what experiences are showing on your report, what kind of business you operate, and believe it or not, something as simple as where your business is located can impact your approvals. It is your responsibility to sort through the promises and get to the facts.
POINTS – You might as well say “percentage” because that is what this really means. If they are wanting points on approvals, it means that for every dollar of credit they obtain for you, you have to pay a portion to the company who got you there. That doesn’t sound so bad, really, if you think of it as an incentive for them to achieve as much as possible. Until you consider that they may get you a $1000 line of credit with some outrageous company you will never use and you now have to pay them 10 points ($100) for something that will never really benefit you at all. Some companies charge upwards to 15 points and give you no choice in who they are applying you to.
GUARANTEE — As we all know, there are only two guarantees in life… death and taxes. Even something as simple as a 35 billion year history cannot guarantee you will see a sunrise tomorrow morning. There are no other guaranties. So if their ad says they can guarantee approvals, run for the hills. So many companies who assist in building business credit say this nasty word, and after they have strung you along for months and months and you are no further ahead, they will fall back on some hidden clause in the contract to cover themselves and you are out a lot of time and energy, and a whole lot of money.
NO UPFRONT COSTS – Face it, no one works for free. There are lots of companies that say they will, but then, once you get roped into their service, the added fees start piling up. You can’t even get a gym membership these days without some type of promise to pay. Some companies promise to get a lot of work done before you have to make your first payment, but then sit back on their haunches waiting for that first payment to clear before they really get to work.
CREDIT PARTNER PROGRAMS – The newest wrinkle in the credit process are so-called “credit partner” programs, getting you to add someone who has high personal credit scores to your company report so they look like a part of your business and can vouch for your creditworthiness. The credit “partner” applies for credit in your company name using their credit score to vouch for the loans. Problem is, you don’t get the money. The partner does! In return, you are hoping the loan will show up in your positive payment habits and that the “partner” will always pay the bill on time. You may get a small stipend for doing this very foolish maneuver, but you could very likely lose everything in the process. Banks and federal authorities consider this to be bank fraud, and D&B® sees it as a misrepresentation of business principles, which leads to your report being placed into Severe Risk status and your credit being permanently cut-off. And since the “partner” has already gotten as much credit as possible into their pocket, your company will be considered “over-extended” by banks, lenders, creditors, and additional funding sources.
INCREMENTAL REPAYMENT – These types of credit require you to provide your bank account information and access to your receivables. The lender will “auto deduct” a “small amount” on a daily basis to repay your debt. After researching such a contract, and reading the fine print, it turns out that you can pay upwards of .47 on every dollar! While it sounds good when you are facing a moment of desperation, this type of repayment plan can be devastating to your small business, especially one already having a hard time managing their day to day working capital. Imagine cutting that capital in half!
MINIMUM REQUIREMENTS – Read the small print. Most of these companies require a minimum amount of monthly revenue ranging generally between $10,000-15,000. Most small businesses are already struggling to make ends meet and simply do not have that kind of monthly income to tie up. If you do, then you don’t need to read this article because you can most likely walk into any bank and get a line of credit. This is just another way to lure you in, and then hit you with crazy fees and charges when there is no escape.
But you also need to do one more thing – RESEARCH, RESEARCH, RESEARCH — Common sense approaches do not only apply to lenders, but also to choosing which company to assist you in building your D&B® report. If you have visited their website and think you like what you see, follow that up by searching a company by their name on the web. See if there are any Scam alerts, Ripoff Reports, PissedConsumer files, or BBB complaints.
Up to 90% of dissatisfied customer threaten to file a claim, but less than 10% actually do. If you are seeing numerous complaints or blog-postings about a company, you can bet your last dollar you would just be adding your name to the list.