If you’re looking to build business credit for a commercial real estate entity, then you’ll need a DUNS number. DUNS stands for data universal numbering system. A location-specific number, DUNS numbers are 9 digit numbers given by Dun and Bradstreet to businesses in the U.S. as a way of evaluating a business’ credit.
Just as an individual’s credit history can be checked for credit worthiness, so can a business check out another business. A DUNS number reveals how long the business has been in operation, who owns the business, and whether or not they pay their bills on time. It will also list credit references.
And although you’re not required to have a DUNS number, if you intent on building credit for a commercial loan no business will extend you credit without it. Once you apply for a DUNS number, don’t forget to fill out your profile as completely as possible.
Your business profile is equivalent to a resume, and allows companies, potential partners, and banks to get critical information about your business.
Making sure that facts such as number of employees, and your gross annual sales are accurate will impact on the decision on whether or not to extend you credit, and what terms. Dun and Bradstreet also allow you to upload financial statements, which is an excellent way of improving your credibility and trust factor.
But what can you do if you’re a new business? How can you build up credit so that you can get financing for your commercial real estate investment property?
Building business credit for a DUNS number is a lot like building up personal credit
An easy way to build up credit with your DUNS number is to choose 3 suppliers that report to DUNS.
Suppliers that extend trade credit – which means they allow you several days or weeks after you receive inventory- will allow you to build up a PAYDEX score, which is similar to a FICO score for indivdiuals. You need at least 3 suppliers in order to get a PAYDEX score, though, so even smaller vendors can help.
Try and choose a supplier that reports to a credit bureau. Suppliers include Office Max, a Staples, or a Home Depot are some examples, but if you need a different supplier you can also list a different supplier as a trade reference on your Dun and Bradsreet account, and their data will be added.
Just as you would if you were trying to build up personal credit, you can purchase items on the account, paying off the bill in full as soon as you receive it.
Whether you pay on time affects your PAYDEX score: PAYDEX scores over 80 mean the business pays ahead of time, while 80 is on time. If it’s typical in your industry to pay a few days or weeks later, don’t panic, as this information will also be noted in your account.
After about 6 months have passed, you’re ready to take things to the next level.
Go to a local credit union, and open up an account based entirely on your DUNS number. Try and get a small account – perhaps $500 or so- and slowly build up credit.
You may have to give a deposit to cover the account, but if you are careful, this will provide you an excellent way of building your business credit so that you can credit for commercial property loans in the future.
Business credit cards can also help improve your credit. However, you want to make sure that vendors are reporting your payments on time, as this is a critical factor in improving your credit.
TIP: There’s no need to get anything but the basic DUNS number. You may get a phone call suggesting you upgrade, but spending more money for the upgrade is unnecessary, nor will it help build your business credit any faster.
Use Less Business Credit Than You Have Available
Another way to improve your business credit score is by using less credit. This is called your credit utilization ratio, and the lower it is (under 30% is a good number to shoot for), the better. This shows lenders that your business is most likely in good shape, since you don’t need to use all the credit you have available.
If, on the other hand, you’re already maxing out on your credit lines, you can also try asking for an increase on your business credit cards. Increasing your credit line automatically decreases the credit utilization ratio.
Improving your business score is necessary if you’re looking to secure financing for a new purchase. Keep in mind, however, that when buying a triple net lease property, banks place substantially more weight on the success of the franchise than on the personal or business credit scores of the investor.
Tags: Business credit, Business credit cards, commercial real estate, credit bureau, DUNS, DUNS number, FICO score, PAYDEX score