Business credit.
For an entrepreneur, it can be a confusing thing.Enter our guest, Gerri Detweiler.
She is a credit expert, author and speaker who has helped people find reliable answers regarding credit issues for the past 20+ years through her educational programs and materials.
She gives all the needed information for small business owners to make better decisions with tools and strategies to create a financially healthy business.
She has been featured in more than 3000 interviews including on The Today Show, Dateline NBC, The New York Times, USA Today and Reader's Digest.
During this interview, you'll discover...
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What is business credit
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The benefits of talking to your accounting professionals
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Where to find free credit tools and resources for bookkeepers
To learn more about Gerri, visit here.
For her LinkedIn page, click this link.
EPISODE TRANSCRIPTION
Michael Palmer: 01:30 Welcome back to The Successful Bookkeeper podcast. I'm your host, Michael Palmer, and today show is going to be a good one. Our guest is an expert who has more than 20 years of experience guiding individuals through the confusing world of credit and has earned a reputation as a reliable source on personal and small business credit. As a result, she is a sought after expert pairing on CNN, the today show, Fox business, and various other television programs. Gerri Detweiler, welcome to the show.
Gerri Detweiler: 02:03 No, thank you so much for having me. I
MP: 02:05 It's great to have you and I'm excited we haven't tackled much of this topic on the podcast. I think this is a bit of a first and such an important topic to be having a conversation about.
GD: 02:16 Yeah, it is. And for me it's just I, I'm, I'm having a great time because I've been involved in the credit world for a couple of decades now and a few years ago I shifted over to primarily working with small business owners and it, the business credit for them credit general for an entrepreneur is, is just such a confusing, uh, thing I hear from business owners all the time. Like business credit, that's a thing. What is it? So it's really fun to get the chance to educate business owners and especially the professionals that work with small business owners who can really have an impact.
MP: 02:51 Yeah, absolutely. Well, that's our audience for sure. Now before we get into all of this, tell us a little bit about your background, how you got became an expert in business and personal credit.
GD: 03:00 Yeah, I completely fell into, it, fell into a job with an advocacy group in Washington DC back when if you wanted a credit card, you'd send our nonprofit organization for dollars and we'd send you a list of low-interest rate credit cards, mostly based in Arkansas. That's where they kept the interest rates. And uh, got to do some really cool things like working on the legislation that gave consumers disclosure of the cost of their credit card before they actually got it in the mail and the legislation that gave us free annual credit reports and plain English disclosures of credit reports. So I have a long history in the consumer credit world. And then about seven or eight years ago, I met a small business attorney, Garrett Sutton, and he was finding that a lot of his small business clients were having some challenges related to business credit.
GD: 03:52 So I thought this is an interesting area to delve into. So together we wrote a book finance your own business. And in the course of writing that book, I interviewed the CEO of Nav and I loved what they were doing, basically like a credit Karma, but for small business. And when my book came out I ended up joining the NAV team full time. So I am focused as director of Education for nab on educated small business owners on credit and financing options and helping them make smart decisions.
MP: 04:12 Oh, wonderful. Well let's, let's maybe start off with, I just love that. I mean your, your, your history of being an advocate. I mean I just have to say thank you for doing that. I mean you're part of what makes probably a, the ability to do business and transact better and more transparent in the world.
MP: 04:41 So thank you for that. On behalf of all our listener. But, uh, you know, when we talk about credit, what's the difference between your, the conversation with businesses and, and speaking to somebody on a personal level?
GD: 04:57 Well, businesses, most business owners don't understand or realize that they are business has its own commercial credit report. So there are business credit agencies that compile credit reports sell and they sell millions of these credit reports every year for insurance and credit and other financial decisions. And most business owners just aren't aware of it. So I'll give you a quick example. I was on a, on a Webinar I did with accounting professionals and someone reached out to me afterwards. She said, yes, I used to work in supplier relations at Walmart and we would pull it down in Brad Street on every supplier that we wanted to work with. And most businesses didn't even realize this was going on.
GD: 05:35 So it's kind of a mystery. And the reason it's a mystery is that there's absolutely no federal or even really state regulations that require any kind of disclosure of business credit to the small business owner. So anyone can check your businesses business credit, but if someone does check it, they don't have to tell you. And you don't get any of, uh, Opportunity, at least under federal law to get a free annual credit report. You don't get an opportunity to be told, hey, you weren't, you didn't qualify for this financing because of your business credit. Here's how to get a copy. There's just nothing around that. So it still remains largely a mystery to the small business community.
MP: 06:16 Wow. Is there anything being done about that?
GD: 06:20 Uh, there are some fairy initial attempts to provide some disclosure. If a business, small businesses credit is breached. And that's the initial attempt. But just saying the word breach reminds me too that it's important for business owners to know that they can't freeze their business credit. Unlike your personal credit where we have have a new federal law that went into effect in September of 2018 in the US this is us law that allows the individual to freeze their personal credit reports for free and also provides the opportunity to, to create and freeze a child's credit report to help prevent, uh, identity theft of children, which is a, a big problem. We don't have anything similar in the business world.
MP: 07:05 Wow. So when you say freeze, what, what, what, what are the implications of that?
GD: 07:12 So when you freeze your consumer credit report, it basically locks it down. And anyone who doesn't already have an existing relationship with you, like your current credit card issuers, for example, cannot access your credit unless you unfreeze it. So if you want to go get a new cell phone or you want to get car insurance, both transactions where they would likely check a credit report, you need to unlock your credit reports prior to this log. You could only get it for free if you're, if you were a victim of identity theft or if you are in a state that provided some protections like Florida, where I live, where if you're a certain age, you could do it for free now because of all the data breaches, you can actually freeze and unfreeze your personal credit reports for free at any time.
MP: 07:56 Oh Wow.
GD: 07:57 So that's, that's a big, that's a big deal for many people too, for, for security and protection and, and uh, anything else that, that, that it's protecting them from,
GD: 08:07 uh, it's really a security protection largely. And if for some people that makes perfect sense for others it may make sense to simply monitor your credit. So you spot anything unusual. It's happening very quickly. I, I feel like it's a case by case basis, whether it makes sense for you, but, uh, if it does, the good thing is you can do it for free now.
MP: 08:26 Beautiful. Well, on the topic of business credit, why should bookkeepers be thinking about this in regards to their own business and as well to their client's businesses?
GD: 08:39 First of all, I think bookkeepers are a key part of the fight business financing ecosystem. And I'm constantly talking to my small business owner audience about how important it is to have their financial information up to date and accurate. There's a number of types of financing that do require you to share information about your business banking relationships and they're looking at basically at things like revenue and cashflow. And so if you are behind on your books or if you're scattered and you're using a personal credit card and a business credit card and a personal account and a business account and you're mixing everything out, it makes it very difficult to qualify for these types of financing that can be very appropriate in many circumstances. So I'm always telling my small business owners, hey, work with your bookkeeper, work with your accounting professional, make sure everything's up to date because this is going to help you when you go to get financing.
GD: 09:35 So for bookkeepers, I think they play a very important role. First of all, they can educate the small business owner on smart things like making sure they have and use a business bank account, making sure they have and use a business credit card as opposed to using their personal credit card, making sure that they are staying up to date, you know, on their, on their bookkeeping. So they have that information available for lenders also to spot fraud. And that's a big issue where bookkeepers can play an important role. And then finally for the bookkeeper themselves, any service professional, right? Really any kind of business that isn't getting paid in full up front for the work they do is at risk. And there are plenty of statistics that show that many freelance and small businesses have outstanding invoices that are taking a long time to get paid.
GD: 10:28 So you don't want to spend a lot of time only to discover, hey, I, you know, I can't collect from this client. And you as a small business owner yourself as a bookkeeper, you can check business credit on prospective clients as well as your current clients. And that may help you spot other things that you know, may just be a, a reason to say, hey, I need, I need a bigger deposit up fraud or I need to get paid more quickly. I'm not going to let you extend to 120-day terms cause I see you have all these a collection accounts, you're having trouble paying other people as well.
MP: 11:09 Absolutely. Now this is, I, you know, it's not often that that that comes up and I would, I would imagine that many bookkeepers aren't doing this, but this is a, this is a practice of having a good credit policy. I mean, when you're doing work for somebody before you get paid, you're about, you're extending credit [inaudible] and, and that's, that's a big deal in a way. You're financing your being a bank for your clients. What, what steps for someone who's never done this before and wants to learn more about it, what are the steps to having a good credit policy inside your business and have the procedures in place to do these types of things?
GD: 11:48 Well, I think first of all, you can tell your client that you are going to check business credit and uh, and then you can disclose that to them. And then they'll say like, what's that? What does that mean? And then you had the opportunity to educate them on, on why that's important. And then also simply having it in writing. What happens if you know, if bills are paid late and making sure that you can charge whatever's allowable and your state. Most small business contracts are pretty flexible. There's not a lot of, a lot of limitations. For example, I'm charging a late fee or interest on outstanding invoices, et Cetera. But the other thing that this makes me think of that is that the bookkeeper's clients, so the bookkeepers business clients are relying on other suppliers and vendors. So this is a whole ecosystem, right? So you have a bookkeeping client who maybe doing great, they're doing fine, they pay you on time, but then a key supplier, a key client for them starts falling behind or goes out of business or what does whatever.
GD: 12:50 And then that sort of starts this domino effect. So for the small business ecosystem, understanding how business credit is a signal for potential problems, it can be very valuable. It can be helpful for you as a small business owner and also for your clients who are small business owners and educating them gives you, it differentiates you as someone who really is trying to help their small business succeed. It is incredibly important and I think that the bookkeeper has a a great opportunity to educate their clients on this because it could be incredibly detrimental to a business even cause business failure. And and in some industries happens often big, big, big organization goes bankrupt and then that sends shockwaves throughout the entire industry. How would you say the bookkeeper should educate themselves about this? Well, first of all, as a, as a small business owner yourself, if you want to come to Nav, you can get a free nav account.
GD: 13:52 And again, we're like Credit Karma for small business. So for those who are in the US you've probably seen the ads for Credit Karma, check your credit for free. And we do that on the small business side. We show the business owner, Equifax, Experian, and Dun and Bradstreet commercial credit reports for free, and then provide free monitoring. So you can do that for free and check it out yourself. And then you can share that with your clients. Say, Hey, you can check your business credit for free. We do also have premium accounts that let the small business owner, like a bookkeeper check business credit on others so they could check, monitor up to five other businesses. You could also, of course, go directly to the credit bureaus. You can go directly to dun and Bradstreet, Experian and Equifax. Although generally commercial credit reports are pretty pricey.
GD: 14:33 They usually start at about $80 and go up for there from there. So I would imagine many, many bookkeepers going to be looking for an inexpensive free option, a to be able to check the credit on their small business owners. So then when you're in there, you can learn how to build business credit yourself. We have a free tool called business asure and it's a pretty simple process, but it, it, it's not nearly as transparent as it is with consumer credits. So with our consumer credit, you get a credit card, you get a student loan, you get a mortgage car loan, and very likely that's going to report to all three of the major consumer credit reporting agencies, right? Equifax, Experian and transunion. So it's all automatic and it's pretty consistent on the business credit side, the consistency is not there. So you may have one company that reports to Dun and Bradstreet, but another that only reports to Experian or to Equifax or to both Experian and Equifax, but not DMV.
GD: 15:31 So there isn't as much data consistency. So often what we're doing and what I'm doing is as you know, an educator is educated, the small business owner on simple ways to build business credit. And two that are super, super simple. One is to get a business credit card, they'll get a small business credit card and the name of Your Business and those report to business credit. And then the second is to get an account or two with the vendors that report. So these are companies that may sell copy paper or shipping supplies, um, Keurig cups for your coffee machine that you use for your, even if it's a home office. Uh, they're very simple to get. They don't check personal credit, they don't report to personal credit, but they help build business credit. And I have a list of several of them in an article I wrote just@navandav.com forward slash vendors with an ass or slash vendors. You can go to companies like you line quill and Granger, get an account with them, pay it on time and that starts building a business credit reference that helps you build this as credit.
MP: 16:35 That's excellent. I'm all, we'll post that link in the show notes as well. A fantastic resource. Are their mistakes, the big mistakes that business owners are making when it comes to their credit. I mean you said a bunch of them when it's Wa, you know, using a personal credit card and all this mumble jumbo going on, which you know, the bookkeeper comes in and goes that, that they're, they're trying to educate and change that and do the work to set it up so that it's clean and efficient for businesses. But sometimes that education can be be difficult. Are there other big mistakes that you see being made?
GD: 17:09 Yeah, they definitely on the credit card side, I would say that many small business owners don't realize how easy it can be to get a small business credit card. They think that their business has to be making a lot of money, has to been in business for awhile. Most of the small business credit cards make the decision based on the owner's personal credit and on, um, income from all sources. So still have a day job. You have a spouse who works, who would pay the bills, whatever it may be. It doesn't have to necessarily just be income from the business. So what I try to encourage business owners to think about is getting that business credit card early on so they establish that line between business and personal early in the process. I will note that we do the majority of small businesses in the u s are what are called non employer firms.
GD: 17:57 They don't have a full time paid employee outside of the business owner themselves and they often are sole proprietorship so they haven't set up a legal structure. We do at Nav recommend it that a small business incorporate in some form LLC, s Corp, c Corp, whatever makes sense for your business and your accounting professional can help you there. But you can build business credit as a sole proprietorship. But to do that you need to at least get on the radar of the business credit agencies and one way that can help is to get the appropriate licenses that may be required in your state or your local area. Because when you file for those licenses, that information may be picked up by the credit bureaus and lease gets you into their database. And then the other things, so you, so for example, you're a sole proprietorship, you file a DBA, a doing business as a fictitious name, and that filing could be picked up by a business credit agency and then you would get a vendor account and a business credit card in the name of that business and that can get you on their radar.
GD: 19:05 So it's a little bit of a process, but it's really not super difficult. It's not super time-consuming. I think it's just one of those things that business owners often put off. And then when they discover, Hey, I've got this great opportunity to get financing but I don't have any business credit and I really, I'm going to have to use my personal credit. Then that's when they say, hey, how, what can I do? And it's, it's hard to play catch up at that point.
MP: 19:37 Absolutely. I think it's a good old saying, dig your well before you're thirsty. That's really comes back to that education. And the service that, uh, a bookkeeper can provide to their clients is, is getting that clear for them, why it's so important for them to be handling this piece? It all goes together in terms of what a bookkeeper is trying to accomplish with a small business owner.
GD: 19:59 It does. It does. And by the way, I do have a free handout that's just a business credibility checklist that I be happy to share. If you want to share it in the show notes and the bookkeepers are welcome to download a copy of it and give it to their clients. So maybe that will make things a little easier.
MP: 20:13 I think that's fantastic. Absolutely. Anything, I think it's one of those things where just like the business owner, our co, our listeners are business owners and, and they probably sitting there thinking, yeah, I should probably be looking into this or spending some time on this. And it's, this is the time now where, you know, to do it, to make it happen and you've got some great resources in order to help them do that. So in terms of where you see the vision and where we're, where you see things going, what would you like to see change in the industry around business, credit, and finance?
GD: 20:51 Well, certainly at nab we're devoted to your transparencies. So we would love to see, even though our competitive advantages that we provide these business credit reports for free, we'd love to see the same kind of disclosures in the, you know, business credit world as the consumer credit world. In other words, business owners know I can check my credit report for free if I file a dispute. It gets handled promptly, et cetera. So we're trying to bring transparency to that ecosystem. But really this is credit in the, in the, in, in the end is a means to an end. It's a means to successfully growing your business and it's just part of your businesses reputation. There's so many interesting things going on in the business credit space now because it's not heavily regulated. And I'll give you a quick example. Experian has recently created a business credit score that pulls data from business social media accounts and can score that data.
GD: 21:52 So they don't, they haven't said which, who they're pulling from. So I'm saying hypothetical, but let's say your Yelp reviews, your TripAdvisor reviews your Facebook business page, your Google reviews, you know, all those types of data sources could be a source to help score a business. And you could look at trends. Are they, are they improving, are they going down? Is their engagement, is the business owner responding? So your business reputation extends beyond just the individual. And I think we all kind of know this but extends to financing now that it's the beyond just the financials of your business, it extends to the entire relationship. Another great example is one of the small business lenders who's doing a lot of online, small business lending. And the CEO said, we can make decisions based on the shipping data of our clients. You know, what boxes are they shipping, what size to what zip codes, how often, how, what's the volume look like? We can use that to help, uh, to help us make lending decisions. So for the small business owner, understand that it, it's beyond your financials, it's your entire business. Reputation is important. And you want to make sure that you're, that you have some sort of system in place to, to monitor that.
MP: 23:06 It's interesting, you know, it a, if I remember learning as a young person, the, I think it's the five C's of credit. Um, or is it the four cs? Can't remember now. Five, five got it. Right. Perfect. But one of those is character and, and don't really think about that. When you think about businesses, it's, oh, it does sort of lean towards, okay, well what are the financials, right? This is how we would make a decision based on the financials. But it's the trend of where things are going. Small businesses looking at it from the character of the business, their business reputation, social media. I mean it's remarkable that that's happening, but very interesting. I mean it's not really that different from evaluating a human being. Right. You know, are they going to, are they someone who shows up on time or there's someone that honors their word, you know, like these are the things that, that a person used to make decisions on to lend credit. And so we're kind of getting back to those times. Really.
GD: 24:00 Yes, exactly. In a, in an era where you could do business with another business that's across the country or across the world, right? So this is, this is using this kind of data allows you to make better decisions for your own business but also allows you to lenders and financing companies to try. What they're really trying to do is they're really trying to reach the small business owner that doesn't have a lot of business credit. They don't have a maybe a, uh, a strong financial footprint that they can target them easily, but they want to find a way to be able to say yes. So very often the, this is alternative type of data is used to try to find a way to lend to these small businesses as opposed to saying no. And uh, one another great example I'll share real quick is, uh, for those who use the square payment readers, take payments or use Amazon to you out Amazon business of some sort or PayPal.
GD: 24:59 You accept payments through PayPal. All of those companies reach out to business owners. Now proactively to offer them financing. When they see that it makes sense and because they sit on the data of that small business, they don't have to go out and hire someone to market to that small business owner. They can reach out directly, they have your contact information so they can say, hey look, you're using PayPal. We think you can get along for x. And so that kind of that, that type of financing is growing very rapidly. It's been very, very successful for those companies and it also gives another alternative to the small business owner looking for financing. So we're going to see a lot of really interesting developments in this space over the next few years.
MP: 25:41 Yeah, it brings up an interesting thought, right? Is that what, what's the payoff really for? You know, why? Why should someone care about this? Is that it financing comes at a cost and so are you seeing that people who take care of their credit are getting a lower cost of borrowing?
GD: 26:00 Yes. If, if they know how to shop and they know what's available to them, what often happens is the small business owner doesn't know and they're stress, they need financing quickly and they go online, they look for something and it turns out to be more expensive than what they thought. The reason is in the, in the US at least on our country, on the consumer side, for us as consumers, we're uh, any lenders required to disclose to us an annual percentage rate and APR. So we can compare rates among different products. There is no such requirement in the, on the business credit side, California did pass the first truth and lending law for small businesses. It has not gone into effect yet and they're still working on the regulations, how the implement it. But this means that sometimes small business financing can be very confusing.
GD: 26:49 And this is one area where I, I constantly am telling my small business audience, talk to your accounting professional, talk to your bookkeeper because they like numbers. Your numbers, it may not be your thing, right? But they like it. They can help you, you can translate the cost of that financing to an APR. So let's say you get an offer for financing with a 1.2 factor rate. Business owner has no clue what that means. They have no clue how that compares to something else. And depending on the length of time they borrow that money, it could end up being a 39% APR or a 75% APR. Depends on how long they take to pay it back. So one of the things we do at nab is we have free calculators that the business owner can use to translate the cost of financing into an APR.
GD: 27:37 These calculators don't collect personal information. They're on our site and and the bookkeeper, if you have your own website, you can put these on your website as well. They're free to free to distribute however you want. But you can also use it to say to your small business owner, hey, um, if you're thinking about financing, you don't understand the cost, let's sit down and talk about it. Because that way they get, they, they actually see how much it costs. And they get a chance to think about, hey, is this really the best deal for me? In some cases you're better off just putting something on a business credit card and paying 17% interest than going with a financing source that sounds really cheap, but turns out to be three times as much and in cost.
MP: 28:24 Wow. That is an incredible resource. And I think something that bookkeepers can market more to their, to their clients that they can provide this type of analysis and preparation, right? It's thinking about the future. Are there going to be credit needs? Are there going to be a, the, you know, these things coming up and, and preparing. So as we've, this conversation has gone, it's like, okay, well what is it? What do we need to do? How do we make our, our credit be as best that we can put ourselves in the best possible position that when you do need to get that credit, you can have the best shot at it. And what are your options? What, what, what is this going to look like? And, and when there's no, when there's little transparency, that's an opportunity for bookkeepers to increase the value of the services that they're offering by, by helping people understand this and take a look at it deeper.
GD: 29:18 Yeah, I think it's really key. And it's also just key to improving the small business ecosystem because if you have a client who gets into really expensive financing that's not affordable, their business is not going to stay around and you're going to lose that client. But we're also gonna lose another small business that could have contributed to our economy. So it's just, it's, for me, it's very satisfying to be able to help small business owner and
GD: 29:42 I'm sure it is for, you know, many bookkeepers to be able to help them take care of that part of their business that they probably don't want to really deal with but have no choice and you can just be such a terrific resource for them. Absolutely. And there's, you know, there's families behind the small businesses as well. So the way to better communities is to help small business be strong in every country where our listeners live. That is definitely one of the key pathways to a great environment for our children, for our families, for the people that we love so, so I love, I love the work that I do is helping bookkeepers. They're at the core of, they're at the front helping small business in every country and you're one of those people that is helping them, so I'm so excited that there's some really cool tools that you can provide and they're free.
GD: 30:31 Free tools are great to help them do a better job of this for themselves, for their clients.
MP:30:37 This has been great. Jerry, anything else that you'd like to share in terms of how people can interact with you and learn more about the things that you are up to?
GD: 30:45 Yeah, absolutely.
MP: 30:46 So we'll put it, we'll definitely put some links in the show notes that I think will be great. Free resources for bookkeepers.
GD: 30:55 In addition, when if when you sign up for a nab account as a bookkeeper, if you want to use, I can give you a promo code, you can get a month free of premium, which allows you to check a business credit on, on up to five other businesses. So when you go to nab.com/freeaccount use the coupon code podcast and we'll upgrade you to a premium account so you can check that business credit on five key or prospective clients that you, that you feel you need to a DJ, keep tabs on.
MP: 31:25 Beautiful. That's excellent. That's exciting. Well again, all of those uh, pieces of information will be in the show notes. Jerry, thank you so much for being on the show today. Uh, I got a lot out of it and I know our listeners will as well.
GD: 31:38 Thank you for the opportunity. Appreciate it.
MP: 31:41 That's great. Well with that we wrap another episode of the successful bookkeeper podcast. To learn more about today's guest and to get access to all sorts of valuable free business-building resources. You can go to Thesuccessfulbookkeeper.com until next time,
MP: 31:55 goodbye.
