wealthy and wise, leveraging your business credit

Wealthy & Wise: Leveraging Your Credit

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About the Video

Having access to business credit increases your company’s purchasing power. This enables you to purchase inventory or equipment and cover your daily expenses. Obtaining business credit also gives you an advantage in receiving capital from lenders or banks for expansion. Watch Erika Cardenas-Barrios, our Head of Operations, and Marshall Davis, our Business Credit Manager, discuss how business owners can leverage their business credit.

Prefer to read? A full transcript is provided below.

ERIKA:

Hey and welcome to another episode of Wealthy and Wise. My name is Erika, head of operations here for NCH. And today we’re going to talk about credit. I am pleased to present to you one of my very good friends and an individual who is a beast in the credit industry. Marshall Davis, welcome to the show.

MARSHALL:

Thank you. Thank you.

ERIKA:

So, before we begin, I kind of want to give our viewers here a brief description of you and your history. So, you’ve been in the credit industry. What you mentioned to me is what 20 plus years now.

MARSHALL:

20 plus years.

ERIKA:

That’s a long time.

MARSHALL:

A very long time.

ERIKA:

Yeah. And during that time, you were a credit coach. You currently manage a credit team. So, I mean, you’re in the trenches as far as helping clients with credit, helping them with their personal credit. So, we’re going to go in depth on that. I know a lot of the viewers are really interested about business credit. Heck, I don’t even think a lot of them know that business credit exists. Right? Yeah.

MARSHALL:

It’s a big-ticket item. It really is.

ERIKA:

Yeah. So that leads me to my first question. What is business credit?

MARSHALL:

Well, you know, when you talk about credit as a whole, I would like to assume that most people know what credit is. Right? And I would say even more importantly, people know what good credit can do for you. Right? The difference in it is, is that with business credit, the different qualifiers and more importantly, safe practices if you would, but it doesn’t involve the business owner. It’s all indicated on the business. So, it makes it more advantageous. And in more importantly, it kind of helps with mitigating risk for you as a person. When you talk about long term individuals that have dedicated time to building their credit scores, getting healthy credit, and trying to maintain the balance.

ERIKA:

Yeah. Now that makes sense. And again, to what I mentioned earlier, a lot of people don’t realize business credit exists or that it’s even important. Now, because business credit is so new to a lot of our viewers. How does business credit differ from personal credit? Like do they report to the same credit bureaus? Like how does that work?

MARSHALL:

Well, they’re very similar in the numerous of ways. I think the biggest differentiator is that business credit is not regulated like personal credit. With personal credit, you have a fair credit reporting act as so many different acts that indicate how credit has to be reported managed by creditors, lenders and those that report it. Business credit, the only difference is, is that, you know, they still report to similar bureaus, but their business obviously. You know, you’re talking about Dun & Bradstreet, Business Experian, same equivalent as personal. And you talk about Equifax, which is some of the major players. But, you know, the main difference is, is that business credit is all based on those companies that choose to report the activities and more importantly, the value that that brings to the credit profile and those companies that extend credit, if you would.

ERIKA:

Got it.

MARSHALL:

But, you know, they process the habits.

ERIKA:

They do the same thing.

Marshall:

They’re no different.

ERIKA:

Okay. So, instead of it being for a person, you’re doing it for a business. And a business has I’d like to refer to it as the business’s Social Security number, which is the E.I.N., the tax I.D. number. So very similar concept. A person has a social, the business has their own version of that.

MARSHALL:

And it’s interesting, though, you know, it’s I can’t remember when or who made the quote, but the argument was that a business is an entity no different than a person. Which basically is what you’re saying right now. And in the whole process of building credit, if you would, it’s almost as if the business was a person. It would take the same steps to build a credit profile.

No different than you and I.

ERIKA:

Well, so it takes a long time to build essentially.

MARSHALL:

I won’t say a long time. Right? You know, the biggest thing about credit is, is that, of course, the longer you do it, the more you have, the more that’s available. You know, the biggest in business credit is that if you do it properly and you get the right exposure in the areas that you needed, it doesn’t take as long as many people think. Right? You’re simply trying to establish that I have healthy credit habits as a business. I have multiple accounts. And I’m being acknowledged that Dun & Bradstreet, the major credit bureaus that report credit, they’re going to stand behind me and speak to those favors when I’m in a lending position.

ERIKA:

Yeah. That you’re a credible business.

MARSHALL:

Credible business. Right? And at the end of the day, when you talk about lending in any direction or credit, in any direction, it’s all based on risk factors. Right? And then more importantly, are you lendable and do you present yourself that have good enough habits where so, I can get short term loans, I can get long term loans, I can get low limit and high limit. And it makes all the difference in the longevity of your business. It really does.

ERIKA:

Yeah. No, that makes sense. So, that leads me to my next question. Why would an individual or a business need business credit? Because I can tell you even from my personal friends and even for myself, before having been in this industry, I thought I didn’t know why you would need it. I mean, a lot of people think about, hey, what do I need to give this business to get it up and running?  I need staff, I need a building, I need product. I need that, all of that to really get it sustaining up and running. Why would a person think of business credit being something that is in the forefront of what they need for their business?

MARSHALL:

Well, I’ll be honest with you, the most common question, I would say the most consistent question that I get is why do I need to do this? Right? You know when you talk about a business as a whole, it’s exciting, right? It’s almost the same as purchasing a home or getting approved and going and designing everything. Buying new furniture, right? And that excitement can sometimes cloud the important pieces. Right? Structurally, it obviously is important. But the way that you should manage it is, is that the minute that you have a business, you should begin building credit because again, history is a big proponent of credit. So, when you look at the whys and the benefits. So first and foremost, I think that it’s safe to assume that everybody knows the benefit of having good credit. Right? And I think that everybody knows the exact opposite side of that. Right?

ERIKA:

We’re all guilty of making bad choices when it comes to credit.

MARSHALL:

Exactly. So, when you look at it for what it can do from a business standpoint. So first and foremost, the biggest challenge in any business is how do I get access to money when I need it? Not just because I want to have it just in case, but when I need it most. Right? And I think, you know, just take the pandemic, for instance. A lot of companies didn’t have these resources available to them. So that meant that if they were a W-2 employee and managing a business on the side and things went awry, not everything’s reliant on you. And that means there’s no income. Your business pays the price. Right? And then more importantly, in most cases, a lot of people’s credit was damaged unfortunately. So, when you look at one, long term effect, you know, credit allows you just like with personal credit, access to those purchases that you can’t come out of pocket for. Right? I need new equipment. And I have a client that I’m working with right now and, you know, prominent business doing okay, you know, not a large-scale business, but looking to grow. Right? And right now, he says, Marshall, I need, I need new tools. I need new equipment. And I’m okay, how much are we talking? $300,000. I wasn’t expecting that number, right?

ERIKA:

Wow. That’s a lot.

MARSHALL:

Think about it. If your business is generating a couple hundred thousand or even a million a year, depending on your expenses, and your debt and what those reoccurring costs are, that could be a big ticket. Right? So now how does that stall your business if you don’t, you know, if you can’t get access to those items that you need to get a contract right get the big contract. So, business credit allows those opportunities simply by allowing you to get access to accounts that your business needs. If a business starts out the same. So, I need supplies, I need office supplies, maybe some marketing materials, maybe office furniture, and little things like that. Right? So those expenses shouldn’t come out of pocket. Most people start the business on their personal dime anyhow, right? So, the trick is to start transitioning where I don’t want to be responsible. And I’ve always referred to it as kicking the 18-year-old off the couch. Right? I can give you money and I can make sure you’re in good spaces. But if I get you to where you’re generating an income and you’re building credit, I could permanently get you off my couch. Right? Same rules apply.

ERIKA:

I like that.

MARSHALL:

Same rules apply. So, in that when you establish accounts and you use them just organically as your business calls for it, they’re allowing you to record those transactions. They’re recording those dollars that you’re spending. So now, me, underwriter comes into the equation and I want to know how strong your model is. Right? And I want everything I can get my hands on, right? If Grandma is going to tell me secrets that you do, I want to know because that’s going to help me mitigate risk. Right?

ERIKA:

Right. Right.

MARSHALL:

And at the end of the day, that’s all that’s important. How do I find out what you really do with credit so that I can feel free to give you the $150,000 that you’re asking for, or whatever that limit may be. And it also allows you to, like you said, scale your business. This is where I want to be in three years. But also have the money that you need to continue to grow.

ERIKA:

And in case something happens I mean, to your point, with this whole pandemic, you know. There’s a lot of businesses that really grew during this time. There’s business that, you know, started doing this time, but there’s also a lot of businesses that had to fold, unfortunately, due to financial situations. And credit could be a big part of it.

MARSHALL:

You know what, I got a story and it’s like one of those not so feel good but feel in the end, you and I had a movie or something and

ERIKA:

It’s like the feel good.

MARSHALL:

Right. So, you know, business owner, a flower shop owner, multiple locations. Right? And I would say he was out of Philadelphia. Right? Very prominent business. Right? And unfortunately, he was diagnosed with cancer. He had to take a one year sabbatical away from his business. Right? Because of his business credit, he was able to keep everything afloat. Now, of course, you know, maybe his balances were teetering on the high end, but nonetheless, he didn’t lose everything that he worked so hard for.

And believe it or not, he actually called me back. He said, just want to let you know, hey, I’m back. I’m stronger. I’m back in the market. I need your help. Right? He says, but I will say that had I not had these resources available to me, we probably wouldn’t be having this conversation. And that speaks volumes. If you really think about it. I had something to cover me in my darkest hour.

ERIKA:

Wow. That’s powerful. Yeah, a lot of people don’t think that having business credit could really help you in those situations.

MARSHALL:

And I would think that I think the biggest issue, and this is just based on my exposure to the number of people I talked to and I talk a lot. I talk to a lot of people I know, right. A lot of people I, I would venture to say maybe five to 10,000 people a year. Seems like a large number, but it really isn’t right? But the biggest, the biggest thing that I’ve uncovered is that the average individual, average individual business owner, let me correct that, have no clue what business credit is or even how it works. And then those that have gained some insight to it, they’re intimidated by it because the word business is in front of credit. And, you know, when you talk about business and credit, generally speaking, you’re talking about how your balance is higher limits, the bigger need. So, you know, as I have these conversations, in most cases, I’m trying to educate people as to this is how it works. And believe me when I say there’s tons of money available out there, tons of money but if you don’t know the loopholes, if you don’t know what practice that you need to promote on a consistent basis, and when I say consistent, every couple of months, that simple. There’s so much out there. And once you make the connection, most individuals that I work with, they take off. And then there’s that addiction, that it comes with, right? You know how it’s like when you start building your credit and you start getting used to it.

ERIKA:

You get so excited you’re like, okay, now that you see the progress, you want to keep it going. I want to get there faster. What do I have to do? You know, it is definitely exciting. And I think most importantly, one of the questions that we’re ultimately going to get is why one should get business credit, like how would that benefit? I know you’re a business owner, right? So, in your personal experience, how has having had business credit helped you and perhaps maybe the latter part of those who didn’t really go down that path and they used their personal credit to, you know, to really get their business up and running, how that differs and why one would be better than the other?

MARSHALL:

Well, I’m going to be the guinea pig in this one. Right?

ERIKA:

So sorry. It’s story time.

MARSHALL:

It’s story time. I always tell my clients this because I want them to understand that, you know, the average individual more times than none are going to go through some trials and tribulations when it comes to credit in most cases.

ERIKA:

Always. It’s inevitable.

MARSHALL:

My first business, like most new business owners, you know, had great credit. All right. I’ve always taken care of my credit. So, I had an opportunity to start a business model. And I went after it. I went after it so hard.

ERIKA:

Right on.

MARSHALL:

And what you don’t notice in those spaces is that money that’s being spent, right? And the long-term impacts of paying those monies back. So, in that first model, I went out red carpet, if you would, and it lasted about 18 months. Truth be told, 18 months.

ERIKA:

That’s not bad,

MARSHALL:

Not bad, you know, but I didn’t have it all dialed in. So, the revenue wasn’t strong and there was a lot of areas where my personal credit was taking a punishment from it. Right? And when the doors closed, I walked away with a 497. Right? I almost got that as a tattoo 497 because it’s the marker.

ERIKA:

Like credit score, personal credit score?

MARSHALL:

My personal credit score was 497. Right? And for a person that has dedicated their entire existence on credit, that was a big punch in the head, right?

ERIKA:

Yeah, to the heart.

MARSHALL:

That was hurtful. But I think the bigger impact was I had about $52,000 in debt. Do you know what $52,000 in debt month to month will do to you?

ERIKA:

No, I would lose sleep.

MARSHALL:

It’ll make you cry. It’ll make you cry a lot. So, in that you know, like most individuals, I was contemplating bankruptcy. Right? And again, because of the fact that I was so strong about keeping good credit, at some point I was, I had to make a decision either left or right. And I said, you know what? I dug this hole. I’ll dig myself out. That was a long travel. It was a very long travel. And it cost me a lot emotionally, mentally. But I pulled it off. I was able to do it, but in that very same space, that’s when I said I got to learn more. I had the right mindset, I had the right passion. I had all of those key things that you need to get a business launched. But I didn’t have what it took to make it the long run. Right?

ERIKA:

The scaling that we were talking about.

MARSHALL:

So now present day we start over, and I start the process again, but I take a different approach. This time. I say, all right, I’m going to take time to build my credit first before doors open. And the reason that I took that approach is because in most cases you find out how much you need when the need arises in their immediate in most cases. Right? So, I’ve taken that approach, and as a result of doing that, I’ve already accumulated a sizable amount of credit to tap into. But my endgame is $250,000. So, instead of saying I want it by this time I know when I should have it. So, I’m working towards that as a goal, and I am on an incredible pace right now.

ERIKA:

Oh, look at you.

MARSHALL:

And it relieves a lot of the stresses that it comes with, with being a new business owner. Because think about it, most new business owners have families, most of them have W-2 jobs, or a 1099.

ERIKA:

I was just going to say. 100% yeah.

MARSHALL:

That’s something that is taking that day to day time away from this spare time stuff. Right? And the pressure from that just managing that scale and then including this new baby quote-unquote…

ERIKA:

It’s a lot.

MARSHALL:

It’ll break you, right? And then talk about the shifts in the economy right? You know…

ERIKA:

That are unpredictable.

MARSHALL:

Unpredictable. They’re all over the place and then take it to a court right now. Rate increases, you know, the cost of money is going to get super expensive at some point. Right? And considering how many new business owners are jumping, jumping into the pool to say, I can do it, I think I can pull this off, that means that there’s a high demand for money.

ERIKA:

For money.

MARSHALL:

That means that the lenders and creditors have the advantage. Now, how do you put yourself above everybody else? Qualifiers, right? And the more qualifiers that you have, the more that you can get. So, the approach that I’m taking right now, I have an A-rating with Dun & Bradstreet. I have an A-rating with Business Experian. And as it stands right now, what I need I get. Now, I haven’t gotten the $250,000 yet. Right? But I will. But the whole point of establishing strong credit is so that when I need it, I get exactly what I want. The last thing I want to be told, like I was told before, that I’m sorry you don’t qualify for that, but you can qualify for this. That may not work for my business model. That may collapse my business model. So, what do I do now? Right now I’m back at square one in dire straits and my business is in jeopardy. So, by having multiple credit resources, speaking to your behavior, Dun & Bradstreet, Business Experian, Equifax, all of those guys saying this is a good risk and they speak to business lending, right? You can go out with good personal credit and secure credit lines or loans in the name of your business to get you, to keep you afloat. But every time that you personally guarantee your line of credit, guess what? Those balances are going to impact your personal credit score. And guess what? If the business calls to need a little more money this month, my balances go up. So, my personal credit skyrockets and boom, it tanks out. Right? And it’s quick, to bottom out. It takes forever to get back up.

ERIKA:

Always, just like personal.

MARSHALL:

Right? So, the trick to it is, is that I don’t want to be a part of the application process if I don’t have to. I don’t want my name associated with any lines of credit, loans in the businesses name because it’s not for me, it’s for my business. So, I’m going to give it an opportunity to do the same things that I’ve done so that it gets the same benefits that I have. And you know, more importantly, I am not damaging the credit that I worked so hard for. And I can assure you one thing, I will never burn my credit again.

ERIKA:

Again, having, right. I mean, you learned the first time, right? So, you knew and you’re educated. You’ve gone through this credit program and you manage it. You live and breathe credit at this point.

MARSHALL:

It’s about credit in my dreams. Yeah, it’s interesting.

ERIKA:

Oh, Marshall. But I mean, not everyone has the education that you do. How is it even possible for someone to acquire business credit if their personal credit is not so good? I mean, how would that even work? Is that possible? Is it not? How hard would it be?

MARSHALL:

Honestly, it’s a two part answer and great question, by the way. You know, first so first it when you look at it for it’s really worth, right? When you talk about credit, it can be daunting. Right? And those that have had credit challenges, the most common response is, well, if I can’t afford it, and come out of pocket, then I don’t need it. Right? They separate themselves from credit as a whole. They don’t look at it. They don’t monitor it. They kind of just put it in closets, stepchild now, right? So, when you talk about that, you know, it doesn’t limit you or omit you from being a business owner because business credit it again. It’s all based on the business. It’s not involving me. So as long as I take the necessary steps to build a profile and, you know, and a good pattern, if you would, slow and steady just like you did, you know, when you started? So, we’re doing this before we go down that road. What was your first credit card? What is your first line of credit?

ERIKA:

My first line of credit was I was in college and it was a Wells Fargo credit card. And I remember it vividly. It was a red card. And I got $1,000.

MARSHALL:

They gave $1,000.

Yeah. I got $1,000. Yeah. Not bad for student, no job, nothing.

MARSHALL:

I wasn’t that lucky. But yeah, I got a Zales card.

ERIKA:

A what?

MARSHALL:

A Zales. Like the jewelry store. I know. It was a whim. I was out and about. I was young. I just joined the Marine Corps. I was in Oceanside, California, and I was like, ha, and I was looking at jewelry. And he said, you know, you could qualify. And I was like, why not? And boom, I was approved. And that’s when it started, right?

ERIKA:

For you.

MARSHALL:

But I would venture to say that most people remember that first line of credit, and from there, that’s when he begins, Well, I need another one. And you go after another one, and you start noticing that, wait a minute, I’m gaining more access and I’m improving my quality of life, right? Now, take that same practice and you apply it to a business. Imagine if your business did the same exact practices, what that would do for it. Right? It’ll give you that longevity. It will give you the things that you need. But more importantly, keep me off the radar. I don’t want to be in that equation. And then the other part of it is, is that, you know, when you talk about business lending, it’s strenuous. Make no mistake about it. And you can go on the Web and this is the biggest, I won’t even say it’s a challenge because in most cases I’m dispelling what they read on the Web. Right? I was watching this video the other day, and it was a young guy who says, you know, you can’t believe everything on the Web. And he said, is coffee good for you? And it indicated that, oh, it’s great for you in all these different ways. Right? And then he went back and googled again, is coffee bad for you? And sure enough, it gave all the supporting facts as to why it’s bad. So, what do you believe? Right? So, when you talk about business credit, a lot of people will go to the Web. They will do their homework. And there’s a lot of credible information, but most of it’s so generic and specific to starting building business credit but none of it, none of it and I spent a lot of time on the Web. Trust me on this.

ERIKA:

I’m sure.

MARSHALL:

I’m a weird guy when it comes to research, but most of it doesn’t really speak to how do I take this information and get the $250,000 that I need. That formula’s not on the Web. The formula that is on the web is how you go about securing accounts, but they don’t indicate what you should do to make sure that you have the best chance to get the things that you need and then more importantly, once I’m past the entry level stuff I have, all right, I got the Wells Fargo thousand dollars. I got the Zales card.

ERIKA:

I need to level up.

MARSHALL:

I need to level up. I want a big level up now. How do I get there based on these activities? I can’t find it. And what most refer to when they talk about business credit from information that they found on the web, they always talk about Dun & Bradstreet. And the truth is, is that Dun & Bradstreet is a big part of it, make no mistake. But you don’t get dollars by using Dun & Bradstreet.

ERIKA:

It’s just a measuring tool, right?

MARSHALL:

I get the access that I need for the physical needs of the business that I can get all day. If I need office supplies. Well, I can go over and get an account set up where I can, you know, get $1,000 for use as a spend. And I can defer those payments. Right? So, I can make some money and pay them off later. But I’m building credit as I’m making, again, organic transactions. But to get to the big dollars, there’s other players involved, right? Those are the guys that write credit. Those are the guys that are measuring credit. No different than personal credit. But if you don’t know who and how to utilize that resource, you will goof up.

ERIKA:

It’s going to be difficult.

MARSHALL:

Right. And you know, when you look at it from for what it’s worth, you know, business credit is not a difficult practice. Right? It’s the loopholes, it’s the red tape that you have to understand well enough to make sure that you put yourself in a good space.

ERIKA:

You’re in compliance.

MARSHALL:

What you’re actually doing is working.

ERIKA:

Yeah. Now, that makes sense.

MARSHALL:

It’s really working. And you can tell because, well, I got a few cards that I’ve secured that shows that it does work, right? And when individuals see that first inkling, it’s almost like going to the gym, right? The minute you see the results that it.

ERIKA:

See some results, yeah keep going.

MARSHALL:

And you talk to about everything about any, any time you in circles you’re talking about it. The same rules apply because once you figure it out that it’s not that hard, there is a process involved. And if I understand it well enough, I can get what I need.

ERIKA:

That’s amazing. I like that.

And it’s pretty fun.

ERIKA:

Final thoughts to our viewers today. Where do they begin and how do they begin?

MARSHALL:

So first and foremost, I’ve always been a huge proponent of understanding what your business is, right? Do your homework. And what most individuals fall short with is that they don’t understand that although you may have a skill set that you can translate into a business to generate revenue is that there’s other factors that are better you know, happening under the table that you don’t see. What are the risk factors of what I do? Right? Because creditors know what the risk factors are and they’re going to make sure that they check into it. Right?

ERIKA:

They’re not going to tell you what that is.

MARSHALL:

They’re not. Oh, no, they never tell you. And then the other side of it is, is that with like credit bureaus, they stack rank you based on where you operate and what your competition is, because those are individuals that could potentially close your doors one day. So how well do you measure up based on that? Right? So having a credit profile and any other resources, right, and I say that because, you know, again, business takes money. You know, it takes money to run a household no different than running a business. Right? But the same translates, if I have multiple sources of income in a household what’s the likelihood of that household having every everything, everything that they want? We need a new air fryer right now. We just bought one. But this is the new one it’s digital right? But will you talk about business credit first and foremost? Know your industry, know what the risk factors are, right? And know how well that industry performs in an area that you intend to operate, right? Then understand that you have to have business credit, especially in today’s climate. There is expected, I would like to say the first three, one at the end of each quarter. So that’s one coming around the bend here. So, all of the major players like, you know, Moody’s, Dun & Bradstreet, Experian, the analytic companies that measure all of this stuff, they all indicate that the first one is going to be significant. But they are also projecting that by beginning the fourth quarter, that credit’s going to rebound and we should be in a better space economically. Right? So, get the resources. Get the resources, start working small, get the Zales accounts, the small accounts that your business is going to need. And if you can funnel those activities that you know that you’re going to have a spend with to a credit profile, do it. Right? Because the unfortunate part is, is that most individuals, though, when it go out and they get credit, that’s because their bank says, oh, you open a business bank account, can I offer your business credit line?

ERIKA:

Of course.

MARSHALL:

Personally guarantee and what most don’t know is most business credit cards do not report to business credit bureaus. There are specific accounts. Wells Fargo, Chase has a few, but B of A, B of A has a ton of different options in business lending and none of them report to a profile.

ERIKA:

Wow.

MARSHALL:

Now, how does that bode for business owner? If I am able to go out and get $150,000 and no one gets a chance to see how well I perform with that. Right? So, know your market, know your industry and more importantly, build credit. Build credit because that rainy day will come, right? When business dries up or there is something going on with the economy, those uncontrollable factors. Business credit is going to be there to support you. Kind of like Mom when you know, when you’re sick and you get that chicken soup.

ERIKA:

Yeah. It’s like, are you there?

MARSHALL:

And it makes all the difference in an 18-month business like my first one or a longstanding, healthy, productive business model.

ERIKA:

I like that. Well, thank you so much.

MARSHALL:

You’re most welcome.

ERIKA:

There you have it, folks. With Marshall Davis here, thank you for joining us on another episode of Wealthy and Wise. If you have any questions, let us know. Like and subscribe down below. If you would like to see specific content, please comment down below as well. Thank you and see you next time.

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