How to Overcome Poor Credit and Build Business Credit in 6 Steps

Most people are familiar with the concept of the personal “credit score” that helps us qualify for loans, mortgages and credit cards, but did you know that your business has a credit score of its own? Many small business owners who utilize platform lenders like Kabbage say that they have had trouble getting a loan from traditional banks – and one of the reasons is often a lack of business credit or a history of poor personal credit. Kabbage has different standards for evaluating a small business’ creditworthiness than traditional banks often use – but it’s still good to build credit for your business, especially if you have less-than-perfect personal credit under your own name.

Kabbage recently hosted a webinar on how to improve your business credit report, presented by Creditera rep Tim Graczewski. The entire webinar is worth watching, but one portion is particularly applicable to small business owners who want to get some quick help to build their business credit.

Here are a few quick tips on how to build business credit in 6 steps – as you can see by the estimated time required for each step, getting your business credit on track is a lot faster and easier than you might expect:

  1. Get your current business and personal scores (2 minutes): You can’t win the game unless you know the score – and the same is true for credit. The best way to improve your credit is to find out where you stand. Start by getting a free copy of your personal credit report from AnnualCreditReport.com – this is the federal government’s approved site to get your credit report, with no extra fees. Each of the three major credit reporting agencies are required by law to give you a free copy of your credit report, upon your request, every 12 months. To check your business credit score, you can use Creditera.
  1. Incorporate your company (2 days): If you haven’t already done so, you need to set up a legal entity for your business. Whether it’s an LLC, S-Corp or C-Corporation, your business can’t have its own “identity” and credit history unless it is set up as an official legal entity that is separate from your personal identity and credit history. In addition to the financial benefits, incorporating your business also gives you certain legal liability protections and helps protect your intellectual property. It’s just a good idea all around to incorporate your company, so do it ASAP if you haven’t already. Once you’ve decided on which legal structure to choose to incorporate your business, contact your state’s Secretary of State office to fill out the appropriate forms and pay any relevant fees.
  2. Establish EIN (1 hour): After you have incorporated your company, you need to get an IRS Employer Identification Number (EIN), which makes it possible to file tax returns for your business and also to open a business bank account and apply for credit in the name of your business. You can apply for an EIN online at the IRS website.
  3. Open a business checking account: Once your business name is officially incorporated and you have your EIN, you can open a business checking account. You might also need a business savings account (to save money for taxes, etc.), a business safe deposit box for vital records and documents and any other financial services that you want to manage via your business instead of your personal finances.
  4. Establish credit lines for your business by applying for small business credit cards and get your vendors/suppliers reporting payments made by your business’ name. You can also apply for a business line of credit or a Kabbage account under the name of your business instead of your own name – this will help you start to establish a credit history under the name of your business, and will also make it easier to track your tax-deductible business expenses and manage your money in a more organized fashion.
  5. Get a D-U-N-S number (optional): If your business is going to bid on federal contracts or apply for federal grants, you need to get a Dun & Bradstreet Number, or “D-U-N-S number,” which is a unique 9-digit ID number linked to each physical location of your business. Read more about how to get a D-U-N-S number in this article from the SBA.

Once your business credit identity is set up, you need to practice the same good payment practices and sound money management that you use in your personal life: pay your bills on time (or early), and watch your credit utilization – the percentage of total credit that you are using compared to your total available credit lines. Read more here about how to build small business credit.

Kabbage offers many resources to small businesses to help them stay successful. From online business checking accounts to providing small businesses a way to accept payments and much more. Learn how Kabbage can help your small business. 

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