Starting a Business in Tennessee

A new business in Tennessee is not out of reach. So have you been wondering: how do I start a business in Tennessee? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in Tennessee during a recession?

New Business in Tennessee: Pros and Cons

According to a 2016 article in Business Insider, Tennessee is in the middle set of ten states to start a new business in. This is for the entire nation.  It has somewhat low living costs. But the state has poor labor force quality, productivity, and also startup activity scores. Still, CBS News named Chattanooga and Knoxville as two of the cheapest cities to start a new business in. Again, this is for the whole country.

Some Recent Changes

In 2018, Forbes listed Tennessee as number 12. But also in 2018, Fit Small Business placed Tennessee squarely in the middle, at number 25. Keep in mind, the three sites have differing methodologies.

So, which is right?

Forbes gives Tennessee high praise for its regulatory environment, economic climate, and growth prospects. The state also does better than average for business costs. But it’s below average for labor supply and quality of life.

Fit Small Business says Tennessee does best with cost of living and taxes. But it’s below average for labor market, a measure of the desirability of an area and the number of people with bachelor’s degrees. Fit Small Business gave Tennessee a rather low quality of life score, but keep in mind there are some subjective considerations in play. Tennessee also scored poorly, per Fit Small Business, for the costs of starting a business.

Your Choice

Only you can decide if it’s worth it to start a business in Tennessee. Plus, Tennessee has a Jekyll and Hyde vibe, where there are a number of decent-sized cities such as Knoxville, Nashville, and Memphis, but also a lot of rural areas. Hence the overall scoring for any of these three sites might not perfectly apply to specific parts of the state.

New Business in Tennessee: Initiatives

The Jobs4TN plan is a Tennessee business resource designed to promote growth industries, establish nine regional “jobs base camps,” and reduce regulations getting in the way of job growth. This plan includes the INCITE initiative, a $50 million project to increase the state’s innovation by providing startup companies with access to needed funding.

To help grow the state’s manufacturing base, some businesses in Tennessee do not have to pay sales tax on qualified machinery and industrial equipment. Manufacturers also can get sales tax reductions on energy, fuel, and water, as well as carry forward net operating losses for 15 years.

The state’s Job Tax Credit is a Tennessee business resource in the form of relief from franchise and excise taxes. Businesses which create at least 25 jobs in a year and meet minimum investment levels can get a tax credit of up to $4,500 per job. These credits can then be used to offset up to 50% of the business’s tax liability. If  not used, the business can carry the credit forward up to 15 years for future tax relief.

As a Tennessee business resource for larger industries, the Job Tax Super Credit offers companies creating at least 100 jobs at specified wage standards up to a $5,000 tax credit per job. This can be used to offset up to 100% of the companies tax liability and it can be carried forward for up to 20 years.

Jobs 4 TN

According to Jobs 4 TN, the biggest growth industries in Tennessee are health care and social assistance; construction; management, scientific, and technical consulting services; automotive, architectural, and structural metals manufacturing; employment services; office administrative, financial investment and legal activities and services; chemical wholesaling; waste collection; alcoholic beverage wholesaling; transit and ground passenger transportation; warehousing and storage; and Investigation and security services.

Savvy business owners can take find new opportunities and advantage of the more seasoned industries in the area by offering goods or services such as data and other computer support like programming; trucking for any industry; safety equipment manufacture and distribution; and taverns and other hospitality outlets.

Here is exactly how to start business in Tennessee.

Start a New Business in Tennessee – Tennessee New Business Secretary of State Requirements

Register a Business Name

Check for business name availability on the Tennessee Secretary of State’s website.

Corporations

For a corporation, a business owner must choose a unique name. Search online records and other archives and catalogs to make sure a name is not in use.

There is a database of corporations registered in Tennessee available for searches at the Tennessee government website.

Corporate Name Reservations

Name reservations are not required to incorporate a small business. But if a business owner wants to reserve a name for their corporation, they should submit a name reservation application to the office of the Tennessee Secretary of State.

The name reservation application form is available at Reserve a Tennessee Corporation Name on the Tennessee government website. The corporate name will then be reserved for a period of four months.

The fee to file a name reservation application is $20.00.

Business Permits and Licenses

The state has a one-stop website for Tennessee business licenses requirements.

Local Permits and Licenses

The Tennessee government has a one-stop website. It also includes lists of County clerk locations as well as city and county websites.

Start a New Business in Tennessee – Business Registration

Make sure to visit the Tennessee Secretary of State website. It has a pull down menu to help you drill down to the steps and forms you need to complete.

Tax Registration

Be sure to register with the Tennessee Online Tax Registration website.

Start a New Business in Tennessee – Virtual Offices

Alliance offers Tennessee virtual business office space in the following cities: Brentwood, Knoxville, Memphis, and Nashville.

Go to Regus for Chattanooga virtual office space and DaVinci for Tennessee virtual office space in Brentwood. For other areas of the state, ask local business owners. Also try computer user groups for help in this area.

Other options may be virtual business office space in nearby states. These are Alabama, Georgia, and also Mississippi to the south. Kentucky and also Missouri are to the north. Arkansas is to the west, and North Carolina and also Virginia are to the east.

Start a New Business in Tennessee – Establish Business Credit

Small business credit is credit in a business’s name. It doesn’t link to a business owner’s personal credit, not even when the owner is a sole proprietor and the solitary employee of the business.

Consequently, an entrepreneur’s business and consumer credit scores can be very different.

The Benefits

Given that company credit is distinct from individual, it helps to safeguard an entrepreneur’s personal assets, in the event of court action or business insolvency.

Also, with two separate credit scores, a business owner can get two separate cards from the same vendor. This effectively doubles purchasing power.

Another benefit is that even startup ventures can do this. Going to a bank for a business loan can be a recipe for frustration. But building business credit, when done properly, is a plan for success.

Individual credit scores rely on payments but also other factors like credit usage percentages.

But for small business credit, the scores really merely hinge on if a company pays its bills on time.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

The Process

Growing company credit is a process, and it does not happen automatically. A small business will need to proactively work to establish small business credit.

Nevertheless, it can be done readily and quickly, and it is much faster than developing consumer credit scores.

Vendors are a big aspect of this process.

Accomplishing the steps out of sequence will result in repetitive rejections. Nobody can start at the top with business credit. For example, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Start a New Business in Tennessee – Small Business Fundability

A small business must be fundable to lenders and merchants.

Hence, a small business will need a professional-looking website and email address. And it needs to have site hosting bought from a vendor like GoDaddy.

In addition, company telephone and fax numbers need to have a listing on ListYourself.net.

Additionally, the company telephone number should be toll-free (800 exchange or the equivalent).

A company will also need a bank account dedicated solely to it, and it must have every one of the licenses necessary for running.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Dealing with the Internal Revenue Service

Visit the Internal Revenue Service web site and obtain an EIN for the company. They’re free of charge. Choose a business entity such as corporation, LLC, etc.

A business can begin as a sole proprietor. But they will most likely want to change to a form of corporation or an LLC.

This is in order to limit risk. And it will take full advantage of tax benefits.

A business entity will matter when it concerns taxes and liability in the event of a lawsuit. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. Nobody else is responsible.

Sole Proprietors Take Note

If you run a company as a sole proprietor, then at the very least be sure to file for a DBA. This is ‘doing business as’ status.

If you do not, then your personal name is the same as the small business name. As a result, you can wind up being directly liable for all business debts.

Also, according to the IRS, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Prevent confusion and considerably decrease the chances of an Internal Revenue Service audit at the same time.

Start a New Business in Tennessee – Starting Off the Business Credit Reporting Process

Start at the D&B website and obtain a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a business into their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s sites for the business. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.

In this way, Experian and Equifax will have something to report on.

Vendor Credit Tier

First you need to build trade lines that report. This is also called the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can begin to obtain credit in the retail and cash credit tiers.

These kinds of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first of all, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are frequently Net 30, instead of revolving.

So, if you get an approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, like within 30 days on a Net 30 account.

Details

Net 30 accounts have to be paid in full within 30 days. 60 accounts must be paid completely within 60 days. In comparison with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.

To begin your business credit profile the right way, you need to get approval for vendor accounts that report to the business credit reporting agencies. Once that’s done, you can then make use of the credit.

Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Helps

Not every vendor can help like true starter credit can. These are vendors that will grant an approval with marginal effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than one time to these vendors. So, this is to confirm you are responsible and will pay promptly.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are service providers which include Office Depot and Staples.

Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.

One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a D-U-N-S and a PAYDEX score of 78 or more.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to purchase fuel, and to fix, and take care of vehicles. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the company’s EIN.

One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or higher and a 411 company telephone listing.

Shell may say they want a specific amount of time in business or revenue. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get an approval.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Cash Credit Tier

Have you been sensibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are businesses such as Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

Additionally, they want you to have an established business.

These are service providers such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are often MasterCard credit cards. If you have 14 trade accounts reporting, then these are doable.

Start a New Business in Tennessee – Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and address any errors as soon as possible. Get in the practice of taking a look at credit reports and digging into the details, and not just the scores.

We can help you monitor business credit at Experian and D&B for only $24/month. See: fastcs.wpengine.com/monitoring.

Update Your Information

Update the details if there are inaccuracies or the details is incomplete.

Start a New Business in Tennessee – Fix Your Business Credit

So, what’s all this monitoring for? It’s to challenge any mistakes in your records. Mistakes in your credit report(s) can be corrected. But the CRAs often want you to dispute in a particular way.

Disputes

Disputing credit report mistakes usually means you mail a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always mail copies and retain the original copies.

Fixing credit report inaccuracies also means you precisely detail any charges you dispute. Make your dispute letter as clear as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you mailed in your dispute.

A Word about Building Business Credit

Always use credit responsibly! Don’t borrow more than what you can pay off. Track balances and deadlines for payments. Paying in a timely manner and fully will do more to elevate business credit scores than just about anything else.

Building small business credit pays. Excellent business credit scores help a small business get loans. Your lending institution knows the company can pay its debts. They understand the small business is authentic.

The small business’s EIN links to high scores and credit issuers won’t feel the need to demand a personal guarantee.

Business credit is an asset which can help your company for years to come.

Learn more here and get started toward opening a new business in Tennessee.

Want to start a new business someplace else in America? Then check out our handy guide to starting a business in any state in the country.

Tennessee’s Response to COVID-19 

Here’s what Tennessee is doing about COVID-19. On March 12, Governor Bill Lee declared a state of emergency. One part of the declaration is that it allows the construction of temporary health care structures in response to COVID-19. It also permits the waiver of certain regulations on childcare centers. 

The Governor has applied for Tennessee to be eligible for emergency disaster loans from the SBA for small businesses. 

See: tn.gov/governor/news/2020/3/12/gov–bill-lee-issues-executive-order-declaring-state-of-emergency-in-response-to-covid-19.html

See also: wmcactionnews5.com/2020/03/18/gov-bill-lee-requests-economic-injury-disaster-loan-assistance-sba