The Truth About Business Tradelines
If you are an entrepreneur trying to establish business credit, you have probably heard the terms tradelines, trade credit, corporate tradelines, or vendor accounts. It is even possible that you know they are important, but don’t know where to get them or how they can help you. Let us explain how they work.
What is a business tradeline?
Business tradelines are credit accounts between a business and a vendor. Payment terms such as net-30, which means the business can pay for purchases in 30 days rather than upfront, are common among suppliers and vendors. Business cash flow can be improved with Net-30 accounts since goods or services do not need to be paid upfront.
In addition, tradelines can help build business credit if payment is reported to a credit bureau such as Dun & Bradstreet, Credit Safe, Equifax, or Experian
Common errors in buying Tradelines
The following are some of the common errors people make when buying business tradelines:
- In case of fraud alerts: If your account has a fraud alert, new data cannot be reflected because the account is frozen. Tradelines can only be installed after the fraud alerts have been eliminated.
- Ignorance: Having a complete understanding of tradelines is essential. When you lack this knowledge, you are vulnerable to exploitation by salespeople. Additionally, you should familiarize yourself with the credit score system.
- Just considering the price: One of the most important factors to consider is the price, but it’s not the only one. Just because something is more expensive does not make it more powerful. Or vice versa.
- Low-cost tradelines for testing: Usually, people buy cheap tradelines at the beginning to see if they perform well, and if they do, they invest heavily. This approach is not ideal as the costs are ultimately higher.
How many tradelines should a business have?
The payment history helps lenders understand how borrowers have handled credit in the past. In the absence of tradelines or other credit references, lenders are unable to ascertain the creditworthiness of a business and how likely it is to pay in the future.
If your goal is to build business credit, it is probably a good idea to ensure that at least three accounts report to the business credit bureaus on your business credit report. The Paydex score produced by D&B, for example, requires three tradelines to calculate a score. It is not necessary to use those accounts each month, but keeping them active by making purchases (and paying on time) can help establish good business credit.
What is the process for getting a tradeline for my business?
The process of establishing business credit can be tricky because not all lenders and vendors report to all major business credit reporting agencies. For example, information about supplier accounts may appear on your Dun & Bradstreet credit report, while business credit card information is often shared with lenders through the Small Business Financial Exchange (SBFE).
The best way to establish tradelines is to simply ask. Discover if your suppliers or vendors offer credit or payment terms. It may require a simple credit check, but most companies will not check your FICO score.
You can find vendors who report to commercial credit bureaus if you don’t already do business with suppliers. Invest in items your business needs (such as office supplies) and pay on time.
Are business tradelines legal?
Definitely. There are some questionable practices associated with something known as seasoned tradelines. Some companies (including credit repair firms) offer seasoned tradelines as a way to help business owners establish credit quickly. Here’s how it works:
A company will form a corporation and open accounts in that name with the intention of “flipping” it. As soon as possible, they will sell this “shelf entity” to another company in order to receive thousands of dollars in credit lines. However, this rarely happens.
New businesses may not need the established credit lines, and if lenders see a new owner trying to take advantage of this scheme, they will shut those accounts down quickly.
It is worthwhile to build strong business credit. Having a good business credit score can open up avenues for better financing, separate personal and business credit, and give potential lenders a reason not to focus on personal credit scores. Developing positive tradelines is a crucial step in this process. To do so, you will want to take the following steps:
- Establish a business credit card that will be reported to commercial credit agencies.
- Establish business credit accounts with lenders and/or vendors who will report to the business credit agencies.
- Pay your accounts on time (early is even better) and you’ll be well on your way to establishing solid business credit.
Business tradelines have many advantages
The process of starting and running a business is never easy. There are many entrepreneurs who feel that they are stuck in a plateau phase, but the only way to increase profits is to inject funds. Tradelines are crucial for business performance. Here are some of the benefits of tradelines.
- Getting loans: Tradelines increase credit scores, which makes you more attractive to financial institutions. Good credit makes it easier for you to secure financing.
- Low interest rates: Poor credit makes your chances of getting a loan slim, and you’re also given high-interest rates if you’re lucky enough to get one. If you have good credit, you can get lower interest rates.
- The growth of your business: Investors evaluate your credit before injecting funds into your business. Having good credit can therefore lead to increased business growth.