Entrepreneurs and small business owners need to access business credit as a means to grow, adapt, and become successful in the long term. Business credit enables a business to borrow funds, obtain improved supplier terms, and create financial standing independent of individual finances. In this guide, we describe how to establish and maintain good business credit, regardless of whether you are a newcomer or an old-timer.
Why Business Credit Is Important
Once you establish business credit, you provide yourself with access to funding not dependent on your personal credit history. Suppliers, vendors, and lenders see solid business credit as an indicator of trustworthiness and financial strength. Good business credit can translate into bigger lines of credit, reduced interest rates, and improved supplier terms.
How to Obtain Business Credit
Follow these steps to create and build your business credit profile:
- Create a Legal Business Entity
The initial step towards obtaining business credit is to create a separation between your business and your identity. Create an LLC or corporation and register it with the state. This keeps your business as a separate legal entity.
- Obtain an EIN
An Employer Identification Number (EIN) from the IRS serves as a Social Security number for your company. It’s used to open a business bank account and get credit.
- Open a Business Bank Account
A separate business checking account allows you to track cash flow, accept payments, and demonstrate financial activity. Vendors and lenders tend to examine your banking history when determining whether to extend credit.
- Register with Business Credit Bureaus
To formally establish business credit, ensure your business is registered with firms such as Dun & Bradstreet, Experian Business, and Equifax Business. You might have to apply for a D-U-N-S number in order to start building your credit.
- Build Trade Lines
Deal with suppliers and vendors who make payments reportable to business credit bureaus. Timely payments establish a good credit history. Begin with net-30 accounts, which provide you with 30 days to pay for services or goods.
- Get a Business Credit Card
Use a business credit card wisely to get business credit in a hurry. Pay your bills in full every month to reflect good payment behaviors and increase your score.
- Keep Tabs on and Tend to Your Credit
Keep an eye on your business credit reports for inaccuracies or attempted fraud. Resolve errors and exhibit good financial behavior to safeguard your score.
Things to Avoid
- Blending business and personal money
- Missing a payment or making a late payment
- Taking too many credit accounts simultaneously
- Overlooking your business credit reports
- Try avoiding these mistakes to make your chances of acquiring business credit stronger.
Final Thoughts
Having the capability to secure business credit can change your company’s financial destiny. With proper foundations, practices, and funding allies, you are able to acquire capital, optimize cash flow, and create enduring credibility in your market. Some businesses have also ventured into products such as “Linkhouse” in order to find other credit-building platforms and sources.
