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Business Credit, Finance & Accounting

How to Build Your Small Business Credit the Right Way


According to Creditera’s recent survey, 62 percent of business owners tap personal savings when funding their small business. This isn’t surprising because getting a traditional bank loan can be difficult for a startup or young company. Regardless of how you initially financed, one of the first things you should do is move away from using personal credit and start establishing business credit in the company’s name.

Like your personal credit, your business has its own business credit scores and reports. These are generated by credit bureaus like Experian, Equifax and Dun & Bradstreet (D&B). They populate the reports by collecting public data and receiving your payment history from any creditors or lenders your business works with.

The information in these business reports impacts your ability to get business financing, trade credit (Net-30 payment terms), government contracts and more. It’s something you’ll want to stay on top of.

Plus, by building business credit that’s separate from your personal credit, you’ll also be able to access more financing. A business can typically get 10 to 100 times more credit than a consumer. And, on average, a business will use 10 times more credit than a consumer. So, maxing out your personal credit cards probably won’t be enough, and doing so can crush your personal credit scores.

Fortunately, building a strong business credit profile really isn’t that difficult. If you’ve been in business for six months or more, you’re probably doing some of these things already. Take a look at the six steps below and make sure you’re checking off each one. It’s the quickest way to build business credit the right way.

  1. Improve Your Personal Credit

“Huh? Weren’t we talking about business credit?” Yes, but initially most creditors and lenders will look at your personal credit scores before extending your business credit. Over time, usually within three years, your business’ credit reports and financials will play more of a role. But at first, you need to maintain great personal credit to even get credit in the business’ name.

  1. Put Your Business on the Map

Before you can build business credit, you need to establish your business as a separate legal entity. It’s the only way that the business credit bureaus can create a profile on your company. Complete the following basic items before doing anything else:

  • Obtain an EIN (federal tax identification number). It’s like a social security number for you business. Getting one is fairly painless; applying only takes a few minutes on the IRS’s website.
  • Even if you’ll never use it, get a business phone number and make sure it’s listed in the directory.
  • Open a bank account in your legal business name. When doing so, verify all of the information is accurate on the account. Mismatched business data can be a red flag to lenders.
  1. Open a Business Credit Card

This is one of the easiest ways to start establishing and using business credit. Stores like Home Depot, Staples, etc. will issue almost any business a card in the company’s name. It may not be for a ton of money, but it will help you start building business credit history. You’ll want to ensure that bank (card issuer) is reporting to the business bureaus. Most do – Capital One is the only one I’m aware of that won’t report to business bureaus for a business card.

  1. Establish Trade Credit with Your Vendors and Suppliers

If your business works with vendors and suppliers, you should inquire about getting trade credit accounts with them. These accounts give you net-30, -60 or even -90 days to pay for the goods and services they provide you. By giving you extra time to pay, these suppliers are extending you credit. And they report your payment history to the credit bureaus. Good to know: Dun & Bradstreet (one of the biggest business credit bureaus) requires that you have at least four lines of credit open before they’ll even create a business credit score and report on you.

  1. Always Pay On Time or Early!

It’s one thing to open small business credit cards or credit accounts with your trade partners, but to establish strong business credit, you’ll need to pay all of these bills on time or early. This payment history has the biggest impact on business credit scores. And unlike personal credit, being just one day late on your business credit bills can hurt your scores. For example, D&B’s PAYDEX score is solely based on your payment history to your vendors and suppliers. Say you have Net-30 day terms to pay one of your suppliers. In order to get a perfect “100” PAYDEX score, you have to pay 20 days before the bill is due. Paying on time (on day 30) will only get you a score of 80.

  1. Monitor Your Business Credit Reports

According to a Wall Street Journal Survey, 25 percent of small business owners who checked their business reports found errors that gave their company a riskier credit rating. Business data tends to be more fragmented than personal credit data and business credit is not subject to FCRA protections like personal credit. This leads to more errors. And errors or missing data can hurt your business credit scores. To build and maintain healthy business credit, monitoring is a must. Use it to get real-time alerts on any changes to your business credit profile. That way you can immediately take action to protect your credit if anything fishy turns up.

Once you’ve taken these steps to build your business credit profile, the fun really starts. You can leverage your business’ credibility to access funding, like loans or credit lines, with better interest rates than credit cards. You’ll also be able to get access to more capital to fund things like buying new equipment, hiring an employee or expanding your location.

And if growth isn’t your goal, building business credit will help you run a better business by reducing insurance costs and giving you more time to pay for services and supplies–which makes managing cash flow much easier.

As a new business owner, it can feel like the scales are tilted against you – especially when it comes to financing. Taking a little time to build a strong business credit profile can help tilt the scales back in your favor. You’ve got to stay on top of it, but the payoff is huge: growing a business you can be proud of.