Gerri has been involved in consumer credit education for many years, even writing a book on it. Gerri was hearing from real estate investors that people were getting scammed trying to get credit for their real estate business. She’s here today to explain how we can get credit for our businesses and how to spot a scam. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“I’m not aware of any major credit card issuer that issues a business credit card without a personal guarantee behind it” – Gerri Detweiler
Gerri Detweiler Real Estate Background:
- Education director for Nav.com, the first site to give business owners free person and business credit scores
- 20 years of experience in the credit industry
- Based in Sarasota, FL
- Say hi to her at https://www.nav.com/freeaccount
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Gerri Detweiler. How are you doing, Gerri?
Gerri Detweiler: I’m doing well, Joe. Thank you.
Joe Fairless: I’m glad to hear that, and nice to have you on the show. A little bit about Gerri – she’s the education director for nav.com, which is the first site to give business owners free person and business credit scores. She’s got 20 years of experience in the credit industry. Based in Sarasota, Florida.
Best Ever listeners, I hope by the way you’re having a best ever weekend. Because today is Sunday, we have a special segment for you called Skillset Sunday, where our guest teaches you a certain skill. Maybe you’ve got the skill; well, if so, then you can hone it based on our conversation. The skill today we’re going to be talking about is finding business credit; finding money for your business via business credit. This certainly is applicable to us as real estate investors, especially as we’re starting out, or looking to grow. If we have time, which I think we will, she’s also gonna talk to us about the scams that are out there to watch out for.
With that being said, Gerri, do you wanna just give us a little bit about your background, and then we’ll roll right into it?
Gerri Detweiler: Sure. I’ve been involved in consumer credit education for a long, long time. I wrote the first mass-market book that talked about FICO scores, and worked on the legislation that gave us free consumer credit reports. So I’ve been involved in this for many years, and a few years ago I met Garrett Sutton. He’s an attorney who has a lot of real estate clients, and he told me that a lot of his clients were struggling or sometimes getting ripped off trying to build business credit for their real estate investing. So we started looking into it together and decided to write a book together; that was my latest book, “Finance Your Own Business.”
In the course of researching that I interviewed the CEO of Nav, Levi King. I loved what they were doing. The easiest way to describe it is it’s like Credit Karma, but for small business. It shows you your business and personal credit scores. I loved it so much that I ended up joining the company full-time. So I’ve been focused primarily on educating small business owners about credit for the past three years, but of course, I have all those years of personal credit knowledge in my head, too… So I like to try to help business owners look at it holistically and help them understand how to make sure both personal and business credit are strong, so they can open up more funding opportunities.
Joe Fairless: And I believe the business model for credit karma is that it’s free, or a low fee if it’s not free, and then they make the real money based on having partnerships with different credit options, like different credit cards and things like that that they recommend to their customers. Is that a similar business model for Nav.com?
Gerri Detweiler: Yes, exactly. When you come to Nav, most of our customers come as a free customer; they see their free business and personal credit. But then with that information we’re able to present to them different financing offers. We have a marketplace, we work with over 30 different lenders of different types around the country; we try to be very agnostic in terms of showing the business owner what’s best for them, not what’s gonna earn someone a commission so they can go to Hawaii, or something… So we try to be very business-friendly in showing those offers, and we don’t sell that information for marketing purposes to lenders, so you won’t get all kinds of phone calls from lenders if you sign up for Nav.
Joe Fairless: So how should we approach our conversation today, in terms of helping the Best Ever listeners who are real estate investors find money for their business via getting business credit?
Gerri Detweiler: One of the things I do when I’m at home in Florida is I usually speak about once a year with our local real estate investors group. Over the years I’ve talked about personal credit, and then we’ve graduated to business credit, and I find that with real estate investors, at least the ones that I’m speaking with, there’s a lot of overlap. There’s a lot of situations where they will turn to personal credit to get some money to accomplish a goal.
Let’s say they’re fixing up a property to flip, and they need to spend money on supplies, and paint, and everything else… So they max out their personal cards, and then when they sell the property they pay it off. I think business credit provides another tool that can help the business owner protect their personal credit, which is important still. Any business owner – real estate investor, anybody; you still wanna protect your personal credit, because there may be times where a good personal credit score could be leveraged for a particular opportunity, so you wanna protect it as much as possible.
So what I tell the small business owner is there are opportunities to get financing in the name of your business, that can stay off your personal credit, so you aren’t affecting your personal credit scores. Many times these financing opportunities have attractive costs, so they aren’t super-expensive, but to get to the point where you’re relying more heavily on business credit than on personal credit, you need to build business credit.
I listened to the interview you just had about raising funds, with Lee Arnold, and I thought this was such a good comparison. That’s a must-listen, by the way… I thought it was such a good comparison what he was talking about, where he was saying “You need to start by doing some deals where you can get some cash, and then that cash attracts other investors, because they wanna see that it’s low risk, that you’re successful.” The same thing is true with business credit. You build business credit, so that you have this reputation for your business. That in turn opens up additional financing opportunities for your business. Does that make sense?
Joe Fairless: It does. So then the question is “How do we build that business credit?”
Gerri Detweiler: Well, the great thing is that it’s much easier to build business credit than some people lead you to believe… And the reason is most business owners are not paying attention to it. We’ve done surveys and 72% of small business owners don’t even know these credit scores exist, and one of the reasons they don’t know is because there’s no federal requirement that anyone give you a free business credit report, there’s no requirement that they tell you if they turn you down based on your business credit… Anyone can check your business credit. It could be a competitor, a future business partner, a lender – anyone who wants to pay for the report can get it.
Joe Fairless: Is it a credit score like your personal score?
Gerri Detweiler: There is a credit score. The commercial credit bureaus – let’s start with who they are. They’re Dun & Bradstreet, Equifax and Experian. There are some others, but those are the three big players, and the commercial databases are completely separate from personal credit. So if you have personal credit with Experian, that’s completely separate from the commercial credit that your business has with Experian.
And then they produce their own score. D&B, one of the most popular scores, is PAYDEX. With Experian it’s Intelliscore. Equifax has a variety of scores, and they run on different ranges. If you pulled your personal credit score and you had an 80 — well, you couldn’t even go that low with most FICO scores, right? With 80 at the PAYDEX score, or Experian’s Intelliscore, that would be good. Those are strong scores. They run on a different scale.
Joe Fairless: What is this scale usually?
Gerri Detweiler: It’s usually 0 to 100.
Joe Fairless: Okay.
Gerri Detweiler: But again, there are scores that can go up to 1,000 and more.
Joe Fairless: Alright, fair enough.
Gerri Detweiler: So always look at the range. When you’re checking your business credit, look at the range and see where you fall on the range. We show red, green, yellow to help you understand where you fall, and whether your score is strong. But always look at that range and see where you fall.
Joe Fairless: Okay.
Gerri Detweiler: Then the process of building business credit is basically to have accounts to report, because you can’t have a credit score, whether it’s personal or business — you can’t have a credit score unless there are accounts that are showing up. That’s how the credit scoring model works – they analyze the data of how you handled those in the past, in order to predict how you’re gonna pay in the future. But the tricky thing with business credit is that not all companies report, and it’s not consistent across all three.
With personal credit, you get a mortgage, it’s gonna probably show up in all three of the major credit reports. It’s not typically the case with business credit. So you have to be a little more scrappy… But once you establish these accounts, even if you have just a few accounts reporting, you’re already ahead of most business owners who aren’t even doing anything to build business credit. So it can be a pretty easy process to get started, and I’ll give a resource if you don’t mind, real quick, I’d like to share… If you go to nav.com/vendors, you’ll see an article I’ve written there; it has three vendors on there – Uline, Grainger and Quill.
They’re all super-easy to get accounts, but they don’t check personal credit, they don’t report to personal credit, so your personal credit is not an issue… You can buy things that you need for your business; it could be janitorial supplies… And their catalogs are huge. It could even be [unintelligible [00:10:53].24] for your coffee machine; whatever it is that you wanna buy – you buy those things on terms. Usually they start out with a small credit line, Net-30. Just pay those on time, and very quickly you can find yourself building credit with them, and those report, and then that in turn makes it easier to get other types of business credit that you might want to use in your business, whether that’s a fuel card, or a Home Depot commercial account, or something else that you can use. So you’re trying to take as many of those purchases as possible and keep them off your personal credit and solely in the name of your business.
Joe Fairless: Two follow-up questions. One, that doesn’t mean that you have to pay interest on it, as long as you pay those bills on time, correct?
Gerri Detweiler: Correct. They’ll give you Net-30 terms, and they’re not gonna charge interests for you to pay in 30 days. There are some vendors where if you have terms with them, you give up a discount. Say there’s a 2% discount if you pay in ten days. If you take the Net-30 terms, you don’t get the discount. So in effect there’s a little bit higher costs with some of those…
And of course, if you get into a business credit card, there’s gonna be interest if you carry a balance, but if you pay it in full you can avoid interest.
Joe Fairless: And when you pay it on time, that is you are getting points or credit for doing that, and you’re accomplishing the objective of having accounts show up that you have, and you’re building your credit, correct?
Gerri Detweiler: Exactly. So with consumer credit it feels a little overwhelming sometimes when you look at all the factors that go into a consumer credit score. With a business credit score it’s usually much simpler – payment history. That is the thing that they are most interested in – your payment history. Are you paying on time or not. So having a few accounts that you pay on time can be very valuable and build your credit quite quickly if you’re proactive about it.
The other thing that I recommend that relates to that is that if you’re gonna use credit cards in your business, and at least to the real estate investors group that I speak with this is a very common scenario; I’ve heard some really strange things in that regard, so I wanna clarify it – the best thing you can do is to get a business credit card that stays off your personal credit. I’ve also written an article with that list, we can put it in the show notes. It’s nav.com/report. It lists all the major issuers… And the business credit then will not report to your personal credit unless you default. As long as you pay it on time, you’re fine.
So if you need to run up a high balance while you’re trying to pay for this rehab, and then you’re gonna pay it off and you refinance, or you sell the property, it’s not gonna bring down your personal credit score. So that’s an advantage of that.
Those cards are pretty easy to get as soon as you start your business. You don’t have to have a business for one or two or three years. But they do check the owner’s personal credit, and there is a personal guarantee. So it is a way to build credit, it is a way to keep those activities off your personal credit, but I’m not aware of any major credit card issuer that issues a business credit card that does not have a personal guarantee behind it. So if you do, if the business does fail, you would be on the hook personally for that debt.
Joe Fairless: And the other question I had was with vendors that you are currently working with – “you” meaning the Best Ever listeners are currently working with – is there a way for them to check if they are getting credit for that line of credit that they’re paying off or they’re working with that vendor?
Gerri Detweiler: Yes. So the question is are they reporting or aren’t they. You can go to Nav, get a free account, we’ll give you a coupon code for a premium account too for free for a month, and you can see who’s reporting. Now, the one thing I have to warn about business credit that’s different to personal credit is the credit reports – and this is industry-wide – they do not list the name of the lender or the vendor. They categorize them. So it’ll be manufacturing–
Joe Fairless: Why?
Gerri Detweiler: They say the reason they don’t do it is because the creditors are worried that then other businesses would come in and poach it by just pulling the credit reports and seeing who has accounts.
Joe Fairless: Right… [unintelligible [00:15:00].04] What’s your theory?
Gerri Detweiler: Well, I get it, but my theory is the reason they don’t is because they don’t have to; in the consumer world you get your credit report by law; they have to explain that you have a mortgage with Bank of America. They don’t have to on business credit; there’s no regulation, so I think that’s why they get away with it.
So you have to be a little bit of a detective to figure out “Okay, yeah, I know I have a $1,200 balance with that card, so that’s probably that account.” I just wanna warn people upfront, because that’s a little confusing… But you can check them for free at Nav, and we also provide a letter; if you want to reach out to your supplier or vendor and ask them to report, we have a description that helps them understand how to do that. Some will, some won’t, but we say not asking is an automatic no, so you can always ask and see whether they will report… But often what I’m telling business owners is to go ahead and work with companies that already do report.
Joe Fairless: Got it. So someone with a newly formed entity – they can get a credit card, and you mentioned the link for different credit cards that use your personal credit as a default only if you default on it, but otherwise a new entity can have a business credit card… And then you gave three vendors on that website for us to go to and use if we want to build our credit that way. Anything else as it relates to building our business credit that you think we should talk about?
Gerri Detweiler: Yeah, the other thing that’s important to understand is how payment history works on business credit, because it’s more granular than it is with personal credit. With personal credit you forgot to pay the credit card bill; you go in a couple days later, you pay it… You’ll get stuck with a late fee, but it’s not gonna show up on your personal credit as late until you’re 30 days late, in most cases.
With business credit they use something called DBT (days beyond term). If your terms with that vendor are Net-30 and you pay on day 32, you’re two DBT. If your terms are net-60 and you pay on day 62, you’re still two DBT. So it’s much more granular with business credit… So what I encourage business owners – especially business owners, because you’re so busy, right? – is to make sure that you set up systems (reminders, alerts) so you don’t forget to pay that bill.
And then the other thing you can do is for those suppliers that you do have terms with, as you build business credit you can go back and negotiate better and longer terms. So if you’re Net-30 now, that doesn’t mean you can’t be net-60, net-90, even net-120 days in the future. And the stronger your business credit, the more likely they are to extend longer terms to you, and that in turn improves your cashflow.
Joe Fairless: Let’s talk about scams. Scams are fun to talk about, but not fun to participate in, so let’s attempt to help the Best Ever listeners avoid participating in them and just talking about them. What have you seen out there?
Gerri Detweiler: Well, a few things. First of all, on the personal credit side, credit repair – it’s not always a scam; I’m not opposed to credit repair, but I think sometimes people think that there’s some secret sauce that if they are willing to pay enough money, they can get anything off their credit, and that’s just not true. It’s basically a process of disputing information and hoping that it comes off; if not, then you dispute it again, and hope it comes off in the future.
On the business credit side, people will spend a lot of money trying to learn how to build business credit, and I would encourage them to start with the things that they can do for free, because that $5,000 or $8,000 might be better spent improving that property, going on to your next deal… So there’s a lot you can do on your own, as a business owner, to get started building business credit. And it’s just a process that you have to initiate. And like any type of credit, you do it before you need it… Because all types of credit are based on a payment history over time. So you start early, before you need it, so that you have that payment history there when you do need it.
The other thing I’ve seen – this happened to one of Garrett’s real estate investing clients, where he spent a lot of money on a shelf corporation, with the promise it would come with a million dollars in credit lines, and it did not, and he basically lost that money. It just didn’t materialize. I’m not saying there’s never a place for a shelf corporation…
Joe Fairless: What is a shelf corporation?
Gerri Detweiler: It’s a corporation that’s been formed in the past; someone formed the corporation, and then essentially put it on the shelf. So it has a longer history as a business.
Joe Fairless: Oh… I’d never heard of that.
Gerri Detweiler: Yeah… The sales pitch is this comes with all these credit lines, because it’s an established business. And time in business is helpful; it’s helpful for many types of financing. But sometimes you spend a lot of money on something that’s not gonna deliver the promise that you would hope, so I would be very leery about some of the promises you’ll get X amount of business credit if you spend X amount of money. Again, it’s a process, and it’s something you can do largely on your own by just taking a few minutes literally every week to establish these accounts and then make sure that they’re paid on time.
Then once you do, the ultimate goal is to have access to more lines of credit for your business that you can use, that aren’t associated with your personal credit, some of them with a personal guarantee and some of them not with a personal guarantee. So that’s the eventual goal, and it is very feasible. It’s just a process that takes time.
Joe Fairless: The concrete next steps that I believe you mentioned to build that credit is 1) work with a vendor that is reporting your transactions to one of the three organizations (Dun & Bradstreet, Equifax and Experian), and then 2) get a business credit card immediately, and use that. Make sure you’re paying it off on time, so we’re not being charged interest. Those are the two concrete ways to do that. Anything else other than those two things that you think the Best Ever listeners should do?
Gerri Detweiler: Yes, and the third thing I hear from real estate investors in particular – because many of them have multiple entities, to hold different properties; so they’ll ask me “Well, which entity should I use to build business credit?” And typically, the best strategy for a real estate investor is an entity that is focused on marketing and management, rather than strictly an entity that is formed to hold a property… Because real estate can get flagged as higher risk by some, and I don’t want anyone to not be truthful here, but if you have a property management or a marketing company and that’s your entity, then I would focus on building business credit with that entity, and then that could spill over and be helpful to your other entities… But that’s the one I would focus on.
Joe Fairless: Very helpful tip, thank you for that last point. How can the Best Ever listeners learn more about what you’ve got going on and your business?
Gerri Detweiler: They can check out a free Nav account at nav.com/freeaccount, and when they sign up there, they can use the code “podcast” and they will get a free month of our premium accounts; that will give them full detailed reports from all three of those credit bureaus.
Joe Fairless: Excellent. Well, very informational… Thank you so much, Gerri, for being on the show. I was summarizing it along the way; usually I summarize at the end, but I just wanted to make sure I was accurately reflecting what you were saying, so… We’re good to go, my friend.
I enjoyed our conversation. I hope you have a best ever weekend, and we’ll talk to you soon.
Gerri Detweiler: Thank you, Joe.