With inflation raging at multi-decade highs, keeping sufficient working capital on hand has become a challenge for many businesses. What some small and medium-sized business owners may not realize, according to credit expert and JMS Consulting founder Keritan Shelby, is how easy it can be to supplement precious cash with business credit.
“You can get actually get approved for business credit accounts with or without using your personal credit,” Shelby says, “but you must make sure to have a strong business foundation set up first in order to increase your fundability.” He adds that a business name, address, email, NAICS/SIC code, and phone number are generally required before obtaining the all-important DUNS number.
DUNS stands for Data Universal Numbering System, a unique nine-digit identification number assigned to companies by global analytics company Dun & Bradstreet, or D&B. D&B provides business credit scores to commercial lenders, much in the same way that credit bureaus like Equifax and TransUnion provide FICO scores to credit card companies and other consumer finance organizations. The higher the score, the more credit a business can earn. Unlike a personal credit score, however, DUNS numbers rely on more than previous credit history. Maintaining an online presence, for example, increases a business’ credibility.
Shelby says that the advantages of using business credit over personal credit are three-fold. For one, business credit should not affect your personal credit, which can be used for household expenses.
Secondly, the business — not the individual — is liable for any debts if credit was obtained without signing a personal guarantee. The debt is still owed, but ultimately the business is responsible. In some cases, lenders have tried to hold the individual personally responsible anyway, but the business and its owner are considered separate legal entities.
Lastly, business credit accounts typically involve higher limits than personal lines of credit. Shelby says that the benefits of using business credit, particularly credit cards, will be familiar to nearly everyone.
“You can use the bonus points for free flights, free rooms or elite status at hotels, cash back on purchases, and a lot more cool perks,” Shelby observes. “If you like to travel, the AMEX Platinum card now gives you Free Clear and TSA PreCheck, for example. It’s just like a personal card, but even better, since most people will spend more on their business card and earn more benefits as a result.”
Shelby clarifies that there usually aren’t any taxes owed on rewards obtained through business credit cards. Nevertheless, it’s always best to consult an accountant if these end up running into the thousands of dollars — or higher — and if the rewards are used for personal items like vacations.
During the COVID-19 pandemic, Americans accumulated a record amount of savings thanks to foregone travel and entertainment, but inflation is quickly soaking up the excess. Shelby says that small business owners are typically scrappy, and most should survive by learning to use other people’s money (OPM), which has always been the name of the game for entrepreneurs.
“Credit is leverage,” says Shelby, “and leveraging OPM, whether from investors or financial institutions, is always the quickest way to grow and scale a business. The only difference nowadays is that OPM is also a survival strategy.”
Though he acknowledges that some young entrepreneurs can access the “bank of mom and dad” and/or trust funds, Shelby mentions that most still need outside help to get a business started, and even established businesses have been getting pinched. The twin nemeses of inflation and frozen supply chains, both of which were supposed to be temporary blips, have wreaked havoc on cash management plans. Establishing and using business credit, he says, is often the only choice small business owners have to ride out the storms.
“There has always been a societal taboo against credit, and understandably so,” Shelby says, “but as long as you have the proper education and use credit to make money, rather than just spend it, there really aren’t any downfalls.”