Starting a Business in Delaware

A new business in Delaware could be in your future. Have you been wondering: exactly how do I start a business in Delaware? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in Delaware during a recession?

A New Business in Delaware: Pros and Cons

As you might expect, Business Insider puts Delaware in its top five (number five) in a 2016 article. This is for starting a new business. And this is for the entire nation. The market opportunity share of new entrepreneurs is good. Plus the state’s business tax climate is better than most.  A key factor is the state’s high productivity score. Delaware has the fifth highest per capita GDP in the nation.

Delaware is also known for its favorable laws and court system. There is a separate court for corporate matters, the Chancery Court). Another plus for Delaware is how close it is to other states. Business owners can take advantage of Delaware’s good tax rates and laws. And they can choose from a hiring pool which can include Pennsylvania, Maryland, and Virginia.

Delaware New Business Programs

A new Delaware Business Resource is the state’s “New Jobs Infrastructure Fund”. It was created to give the state a method to accommodate new businesses seeking to locate in Delaware, as well as provide expansion opportunities for existing businesses. Delaware already has set aside $40 million for this initiative. It is to be supplemented by a further $20 million of bonding authority.

Recent Slippage?

In 2018, Forbes places Delaware right in the center, at number 25. Also in 2018, Fit Small Business clocks in Delaware at number 27. Keep in mind, these three sites all have differing methods.

Forbes praises Delaware for its fifth-best business costs. Labor supply is also ranked well. But growth prospects hover at average, and the economic climate is below average. Even worse, both quality of life and the regulatory environment are in the bottom ten.

Fit Small Business says Delaware is ninth-best for access to capital. The cost of starting a business and taxes are both good. The labor market (a measure of the desirability of the area and the number of people with bachelor’s degrees) is average, at 24^th. Delaware’s quality of life and cost of living are both worse than average. And even more concerning is its position for startup activity – 48^th.

Hence business people might want to weigh these advantages and disadvantages. Given that Delaware is tiny, the feasibility of starting a business, instead, in nearby Pennsylvania, Maryland, or New Jersey should also be a consideration.

Start a New Business in Delaware – Top Industries in Delaware

The state has sought to capitalize on existing industries and relationships that already work well for Delaware residents. Some of the lesser known industries include automotive manufacturing, biotechnology, chemistry, and the health sciences. However, for over twenty years, Delaware has been known for its banking, financial services, and insurance industries. This industry represents more than 1,000 employers and nearly 40,000 employees in the state of Delaware.

Here is exactly how to start business in Delaware.

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

Register a Business Name

If a business owner plans to use a fictitious name instead of their own name for a sole proprietorship or general partnership in Delaware, they will have to register a Fictitious Name Certificate. This must be done at the Superior Court Prothonotary’s office in the county where they conduct business.

A fictitious name can also be used for a corporation, LLC, limited or liability partnership, or nonprofit corporation.

To get a DBA form a business owner can call the following phone numbers: Kent County: (302) 739-3184, and Sussex County: (302) 556-5742. They can get an application for a Fictitious Name Certificate in New Castle County here. Search for corporate name availability here.

Business Permits and Licenses

Use the Delaware One Stop Business Registration and Licensing System. Find out more at the Division of Professional Regulation.

Local Permits and Licenses

Check with your local municipality, city or county office or website. See if there may be any local licensing or permit requirements.

For example, in Wilmington, you will need to go to the Business page on the Wilmington city website. Then select from the menu on the right.

Start a New Business in Delaware – Business Registration

Get forms at the Department of State, Division of Corporations form page.

Tax Registration

Register the company with the Delaware Division of Revenue. They have information to guide you through the registration and licensing steps.

Start a New Business in Delaware – Virtual Offices
Business owners in Delaware can only get Delaware virtual business office space in Wilmington from Alliance.

Regus offers one Delaware virtual business office location in Newark, Delaware.

Neither company offers space in Dover, the state’s capital, and neither does DaVinci.

Fortunately, the state is small, so Dover is about an hour from both Newark (not to be confused with Newark, New Jersey) and Wilmington.

For other areas of the state, if a business owner does not wish to travel even these short distances, business owners might want to seek out local entrepreneurs. Or they might even try computer user groups in an effort to find help in this area.

Start a New Business in Delaware – Build Business Credit

Company credit is credit in a small business’s name. It doesn’t link to a business owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the company.

Hence, an entrepreneur’s business and personal credit scores can be very different.

The Benefits

Given that company credit is separate from consumer, it helps to protect a business owner’s personal assets, in case of a lawsuit or business insolvency.

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

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

Consumer credit scores depend upon payments but also various other elements like credit use percentages.

But for company credit, the scores actually only hinge on if a business pays its bills timely.

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 occur automatically. A business must actively work to establish company credit.

However, it can be done easily and quickly, and it is much more rapid than establishing individual credit scores.

Vendors are a big aspect of this process.

Carrying out the steps out of sequence will lead to repetitive rejections. Nobody can start at the top with business credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.

Small Business Fundability

A business needs to be fundable to lenders and vendors.

For that reason, a company will need a professional-looking web site and e-mail address. And it needs to have site hosting from a vendor such as GoDaddy.

And, company telephone and fax numbers ought to have a listing on ListYourself.net.

At the same time, the business phone number should be toll-free (800 exchange or similar).

A business will also need a bank account devoted only to it, and it must have every one of the licenses essential for operation.

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 get an EIN for the company. They’re totally free. Pick a business entity such as corporation, LLC, etc.

A business can start off as a sole proprietor. But they will more than likely want to switch to a type of corporation or an LLC.

This is in order to limit risk. And it will maximize tax benefits.

A business entity will matter when it involves 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 operate a small business as a sole proprietor, then at 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. Therefore, you can find yourself being personally responsible for all small business debts.

And also, per the IRS, by having this structure there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 possibility for corporations! Prevent confusion and substantially decrease the chances of an Internal Revenue Service audit simultaneously.

Kicking Off the Business Credit Reporting Process

Begin at the D&B web site and get 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 produce 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 websites for the small business. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.

This way, Experian and Equifax will have activity 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 sorts of accounts often tend 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 off, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are frequently Net 30, rather than revolving.

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

Details

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

To start your business credit profile the right way, you should get approval for vendor accounts that report to the business credit reporting bureaus. Once that’s done, you can then use the credit.

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

Vendor Credit Tier – It Makes Sense

Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with a minimum of 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 once to these vendors. So, this is to verify you are reliable and will pay timely.

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 companies which include Office Depot and Staples.

Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the small 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 higher.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are service providers like BP and Conoco. Use this credit to buy fuel, and to fix, and maintain vehicles. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the small business’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 business telephone listing.

Shell might claim they want a certain 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 gotten up to this point? Then move onto the cash credit tier. These are service providers like 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 example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or more. 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 company.

These are companies like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are commonly MasterCard credit cards. If you have 14 trade accounts reporting, then these are doable.

Start a New Business in Delaware –Monitor Your Business Credit

Know what is happening with your credit. Make sure it is being reported and deal with 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 Record

Update the info if there are errors or the data is incomplete.

Start a New Business in Delaware –Fix Your Business Credit

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

Disputes

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

Fixing credit report mistakes also means you precisely itemize any charges you contest. Make your dispute letter as understandable as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.

Start a New Business in Delaware –A Word about Building Business Credit

Always use credit responsibly! Don’t borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying off punctually and in full will do more to raise business credit scores than nearly anything else.

Growing company credit pays. Excellent business credit scores help a company get loans. Your credit issuer knows the business can pay its financial obligations. They understand the small business is authentic.

The company’s EIN links to high scores and credit issuers won’t feel the need to call for a personal guarantee.

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

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

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.

Delaware’s Response to COVID-19

This is what Delaware is doing about COVID-19. On March 17, Governor John Carney submitted an application formally requesting the SBA to provide Delaware an Economic Injury Declaration. Such a declaration makes loans available to small businesses and nonprofit organizations in New Castle, Kent and Sussex counties. 

See: business.delaware.gov/coronavirus