How to Build Business Credit, Get Business Credit, and Establish Business Credit

When you apply for a mortgage, a loan for a car, or apply for a new credit card, what’s the first thing lenders and creditors review? Well, your credit score, of course. Read on to learn more on how to build business credit.

Your personal credit score can dictate (and minimize) many of your financial opportunities. It can affect your credit limits, loan interest rates, and even job opportunities. In many ways, your business credit functions similarly to your personal credit score, and how to build business credit is an important question for any company.

In this post, we will take a closer look at the importance of business credit and share eight ways to help build good business credit.

Why Good Business Credit is Important

Your business credit score is a snapshot and measure of your company’s reputation. This affects your ability to obtain loans, attract clients, and work with other businesses.

The lower your business credit score, the more your company will be seen as a risky proposition. Would-be clients and business partners will be hesitant to work with you if there is a good chance you cannot fulfill your end of the bargain.

Establishing business credit isn’t a complicated process. However, like most things in business, it does take some planning and foresight. And, remember, the sooner you start, the more time you’ll have to establish good business credit.

8 Ways to Build Business Credit

These eight strategies can be important when considering how to build business credit:

1. Get an EIN

The first thing you should do is apply for an Employer Identification Number (EIN). This number is specific to your company and cannot be used by other entities. You might consider it a Social Security Number (SSN) for businesses. The EIN is used to identify your company whenever you apply for business credit. Like an SSN, it is also often used to prepare tax forms.

Any business owner should always use their EIN when applying for business credit. Some creditors may allow you to apply using your personal SSN, but this will not help your company build business credit. It also exposes you to added personal risk should a financial problem occur.

2. Open a Bank Account

One of your next steps should be separating your personal and business financial interests. An easy way to do this is by creating a business bank account. This allows you to complete financial transactions independent of your personal life, establish bank relationships, and grant you easier access to a company credit card.

3. Use a Business Credit Card

Obtaining and using a business credit card works very much like a personal credit card. If you use it consistently, make your payments on time, and steer clear of the credit line’s limit or rollover balances, your score will rise.

However, you should note that your initial credit limit may be relatively low if you have just recently opened your business. Again, this is like an individual applying for their first personal credit card. As you use the card appropriately, your allowable limit will increase.

4. Pay Your Bills

When you own a business, you are responsible for more than just your credit card repayments. Other obligations (and whether you repay them or not) will also impact your business credit score. This can include a lease or mortgage on the office property, loans used as startup capital, and even your monthly utility bill.

Repaying your debts on time is the most effective means of building your business credit score. As you continue to demonstrate a history of financial reliability, lenders will offer you larger sums at lower rates, and creditors will increase your limits.

5. Separate Your Personal and Business Expenses

Perhaps an obvious one, but this is a crucial step when practicing savvy business credit practices. Be precise when separating your personal and business expenses. Make sure to only spend money from your business account rather than your personal account when it comes to all your business expenses. Plus, clearly separating your personal and business expenses will also make things a lot easier when it comes to managing your taxes.

6. Get Incorporated

It may be worthwhile forming a corporation or Limited Liability Company (LLC) if you haven’t done so already. Becoming incorporated can help to separate your business and personal credit and financial profiles successfully. Remember, if you choose to continue to operate as a sole proprietor, your business and personal credit history will be linked, and your personal assets might be at risk should things start to go south.

7. Establish and Maintain Vendor Credit

When running a successful business, a solid and reputable relationship with vendors is paramount. With good vendor/supplier relationships, you can often secure 60 or 90-day payment plans. Having these payment plans with as little as three vendors or suppliers (that report those payments to business credit reporting agencies) can also help your business establish a positive business credit history.

8. Monitor Your Credit

Would you believe that a significant number of small business owners have spotted errors within their credit reports? Carefully checking and monitoring your business credit history can help you spot anything that may be inaccurate. If you do come across a mistake, be sure to file a dispute with the reporting agency.

Owning a Business is Challenging – Getting Funding Should Be Easy

As a small business owner, you are tapped with overseeing most (if not all) of the company’s daily responsibilities. You only have so much time to focus on any one thing, and the last thing you need to worry about is how to build business credit and obtain funding. The good news is that we are here to help.

At Your FundingTree, we have a team of loan experts dedicated to helping small businesses acquire the funding they need to succeed.
Contact us today to discuss your business funding opportunities.