How to Establish and Build Business Credit
How to Establish and Build Business Credit?
Building business credit is a must-follow step for any company that wants to get loans and grow sustainably. It is similar to your credit telling lenders about your financial habits. Business credit represents your company's ability to manage debt and pay bills promptly. But how do you go about establishing and strengthening it? Here's a step-by-step guide!
Manage Your Personal Credit History
Believe it or not, your credit can have a huge impact in the early stages of building business credit. Lenders and credit card companies may look at your credit when your business is new and doesn't yet have an established credit profile.
Before applying for any business-related financial tools, review your credit report for errors. You should work to improve your score if possible.
Set Your Business with an EIN
To separate your business finances from your personal ones, you need an Employer Identification Number (EIN). It is your business's Social Security number. It's used for tax purposes, hiring employees, and applying for credit.
Obtaining an EIN is free and straightforward. You have to visit the IRS website and complete the application. Once you have your EIN, use it for all official business dealings. This way, your company will build its credit history.
Register Your Business for a DUNS Number
A Data Universal Numbering System (DUNS) number is a unique identifier used by Dun & Bradstreet. It is one of the major commercial credit reporting agencies. Having a DUNS number is paramount for establishing your business credit profile.
Many lenders, suppliers, and possible business partners check your DUNS profile to assess your creditworthiness. Registering for a DUNS number is free and can be done online through the Dun & Bradstreet website.
Get a Business Bank Account
A business bank account is a must-have to separate your personal and business finances. It also proves to lenders and vendors that your company operates independently. Pick a bank that grants features suitable for small businesses, such as low fees and easy access to business loans.
Once your account is open, use it exclusively for all business-related transactions. This includes paying bills, depositing client payments, and making purchases.
Apply for a Business Credit Card
A business credit card is one of the quickest ways to start building credit. Look for cards that report to major business credit bureaus like Dun & Bradstreet or Experian Business. Use the card for regular business expenses and, most importantly, pay the balance on time.
According to a 2023 Federal Reserve survey, 45% of small businesses use credit cards for financing. This will provide useful perks like cashback and purchase protection.
Pay Vendors and Suppliers
Working with vendors and suppliers who follow credit terms, like net 30 or net 60, is another way to build your business credit. Paying these bills on time or, better yet, early creates a positive payment history. Ask your vendors to report your payment history to commercial credit bureaus.
Inspect Your Credit
Once you've started building credit, don't neglect it. Regularly check your business credit reports for inaccuracies or signs of fraud. A strong business credit score ranges from 80 to 100, depending on the reporting agency.