5 Ways to Get, Establish, and Build Business Credit

By: Margaret Wood Sept. 15, 2021 11:04AM

A small business credit survey conducted in 2019 by the Federal Reserve found that 53% of companies that had applied for new financing did not obtain the amount they requested.

Building strong business credit takes a lot of hard work—but is worth the effort. Having a line of credit on standby or a business credit card can provide entrepreneurs with the opportunity to take advantage of an expansion, an opportunity to buy equipment or inventory at significantly discounted prices, launch marketing campaigns, hire employees, and help tide them over during those periods the economy hits a slump or accounts pay too slowly. 

This article will walk you through the five steps you can take to get, establish and build your business credit:

  1. Obtain an employer identification number (EIN)
    • Banks require an EIN to open a bank account if not a sole proprietorship
    • EINs are required to incorporate
  2. Put your business on the map
  • Choose a business name and address
    • Perform a name search for availability with the state
  • Open a business bank account
  • Get a business phone number
  • Create an entity – Corporation or LLC
  • Register your business name with the state (not if Corp or LLC)
  • Name agent for your corporation or LLC
  • Get licenses and permits

      3. Establish a positive credit history with vendors and suppliers

  • Secure terms with 3-5 vendors; pay bills on time all the time
  • Not all vendors report to a credit bureau; secure terms with some that do
  • Positive credit history can help mitigate the need to sign a personal guarantee for a business loan

     4. Open a business credit card

  • Find a card with promotional offers and payback within the promotional period
  • If your card offers rewards, pay with the card, build up those reward points and always pay back ahead of schedule.

      5.  Give serious consideration to incorporating

  • This will help you separate your personal credit profile from your business profile.
  • It will also separate your personal and business credits.
  • It makes it easier to get approved for a loan or Line of Credit.
  • Get better terms on Loans or Lines of Credit.

What is Business Credit?

Strong business credit accounts will help you establish your business presence quickly. Monitor your credit closely. Payment information on your business credit report is often more detailed than on your personal credit report.

A significant number of small business owners have found errors in their credit reports. Diligently monitoring your business credit history can help you spot any items that aren’t accurate. If you do find an error, be sure to file a dispute with the reporting agency

Once you’ve established your business accounts, check to see if you have a credit report with any of the commercial reporting agencies:

  • Dun & Bradstreet
  • Equifax
  • Experian

Businesses have credit reports and scores. The companies listed above keep score of your outstanding balances, high/low balances, dates-to-payments, bad debts and other credit information; creditors, insurance companies, lenders, suppliers access this information when evaluating your creditworthiness,

In business, good relationships with vendors and suppliers are like having gold in the bank. The better your relationship, the more likely you are to avoid pre-paying for items or services. Securing payment terms with vendors/suppliers that report to credit reporting agencies will also help establish a positive business credit history.

Pay on time every  time

This mantra is the #1 rule in any credit situation–paying your bills promptly demonstrates reliability and dependability. Late payment histories or severely delinquent accounts will negatively impact your credit rating and business credit profile.

Business credit cards

Business credit cards tend to have higher and even no limits—use them discreetly. It’s very easy to overextend your business finances with these lines of credit. REMEMBER: Just because the credit is available doesn’t mean you should use it.

Get incorporated

Incorporating effectively separates you, your credit profile, and your financials from your business. Operating as a sole proprietor puts your personal assets at risk since everything is associated with you as an individual—people can sue personally.

Avoid co-mingling expenses

Only spend money from your business checking account for business expenses; avoid using a personal account to pay for business expenses as well. By following this guidance, you will also make tax preparation much more manageable.

The bottom line on getting business credit

The importance of having good business credit cannot be overstated–make establishing it and building your business credit a priority. Much like a reputation, a business credit score isn’t built overnight. Keep tabs on your credit report to ensure that your credit scores are increasing. Financing deficiencies were more noticeable among younger companies or those with weak credit portfolios. Most lenders won’t extend a traditional business loan until a business is two years old.

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