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The 7 Things Business Owners Need to Establish Business Credit

Establish Business Credit

As a business owner, you’ve probably heard this time and time again: “According to the Small Business Administration (SBA), approximately 90% of all small enterprises fail within the first two years of operation.”

One of the contributing factors to this high failure rate is a lack of funding. However, smart, credit savvy business owners overcome this hurdle by establishing business credit right from the beginning.

In the time I’ve been in the business credit industry, I’ve noticed some necessary items that make the difference between acquiring credit for the business and running a business as someone who wants access to funding but can’t seem to get approved for it.

7 Important Things to Consider When You Want to Establish Business Credit

#1: Business Phone: Lenders and suppliers will verify your company phone listing as part of the business verification process. If you are a non-listed business, it may trigger a red flag and result in a denial of credit.

#2: Business Address: Although it’s not mandatory, a commercial address for your company speaks volumes in terms of credibility. Unfortunately, some lenders will extend limited credit or no credit to businesses that have a residential location. Many small business owners utilize a virtual office location as a cost-effective alternative.

#3: Business Bank Account: A company’s business bank account is how an owner establishes order in business revenues and expenses. In some instances, a lender may contact bank references, so maintaining a positive banking relationship is vital to a company’s funding ability.

#4: D-U-N-S® Number: This nine-digit number issued by Dun & Bradstreet is the most widely used number to identify businesses in the U.S. Many suppliers and lenders will pull your company’s business credit report from D&B to assess your company’s creditworthiness.

#5: Trade References: The ability to supply trade references on applications for business credit is essential to showing potential creditors that your business is creditworthy. Suppliers and lenders may contact trade references to verify your payment experience with them as part of their credit approval process.

#6: Character: Lenders have to believe that a business owner is a reliable individual who can be depended on to repay on a line of credit or loan. One of the key areas they look into to assess the character of an individual includes personal credit ratings and work experience.

#7: Separate Legal Business Entity: In the eyes of lenders, if you operate as a sole proprietorship you carry a much greater risk compared to a corporation or limited liability company (LLC). By selecting a “safe” legal structure such as an LLC, it limits the personal liability of the owners. Remember, picking the right entity structure is crucial, since your decision can impact how you pay taxes, how much paperwork is required to file and how your business can distribute its profits.

All of these factors may play a role in determining how fundable your business is. Lenders also take the age of your business, revenues and the type of industry you’re involved in into consideration.

If you need access to credit lines or funding for your business, there are various types of alternative financing programs available in the marketplace. For example, the growth of online lending platforms has made the application and decision making process faster than ever before.

Before you apply, be sure you have at least these seven items in place. The fact is lenders have established guidelines that business credit applicants must adhere to as part of the underwriting process. Meeting these standards is mandatory if you expect to qualify for an extension of credit.


Marco Carbajo is founder of Business Credit and The Business Credit Insiders Circle, a step-by-step business credit building system for small business owners.



Kabbage Team

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