How to Build Business Credit

The Importance of Building Business Credit

If you have ever wanted to form your own small business, the Small Business Administration (SBA) can be of great help in teaching you the best ways to make your company grow. One of the most important things you can ever do as a small business owner is to build business credit. This is an integral component of ensuring that your company has working capital and can ultimately thrive. Maintaining a separate credit history from your personal credit history gives you the opportunity to separate your private and professional finances and is essential for the overall success of your business. Here are a few steps that can help you establish business credit.

Check Your Business Credit

If your business is very new, it’s wise to check its credit reports. Although personal credit reports include certain legal requirements for free access, this isn’t the case with business credit reports. You can check with the three major business credit bureaus -- Dun & Bradstreet, Equifax, and Experian -- to obtain copies of your reports for a fee.

For more information, click here for how to Business Credit Building (Step-by-step instructions with coaching)

Get a Federal Tax Identification Number (EIN)

An EIN is essentially a Social Security number for a business. It’s needed for opening business bank accounts as well as for filing federal taxes. You also need an EIN in order to open a bank account for your small business, which is very important. The EIN number is necessary for larger businesses to be paid by their vendors for their services as well.

Open a Business Bank Account

Open a checking account in the name of your small business. Afterward, you must be diligent about paying all transactions of your business only from that account. Of course, if you acquire a business credit card, you must pay off the credit card bill directly from your business checking account.

Open a Business Credit Card Account

While business credit cards are somewhat easier to obtained than traditional Banking unsecured revolving lines of credit, there are higher underwriting hurdles to overcome than with personal credit cards. Opening at least one business credit card account that is separate from your personal credit is an important step towards building business credit. Like building personal credit, which is represented through a FICO score, a business needs to establish corporate credit (attached to the EIN), and develop a history of borrowing and repaying on a regular basis to establish a pattern of fiscal responsibility. Before applying, be sure to understand the requirements for approval. As with all credit applications, which can often lead to denial and hard inquiries, your credit is impacted. Part of the due diligence should include choosing a card from a company that reports to the major ‘business’ credit report agencies, not personal! Many business credit cards are not what they seem. Many of the business credit cards furnished with your business name actually report to personal credit bureaus, and not business bureaus. Business trade-lines where regular positive payments are reporting are so valuable to building business credit.

Get a Small Business Loan, and or Other Forms of Capital

Often, when a small business is just starting out, it’s wise to look into commercial lending and other funding options to ensure you are obtaining sufficient access to capital to reach viability. On average it takes a new enterprise up to 3 years to switch reliance from external funding to that generated from sales. Small business loans, can help boost your business credit as long as you make timely payments back to the lender who report to the major credit bureaus to give your business credit a boost.

Interestingly, 97% of all small business lending in the United States is business to business and not lender to business. Using “net” vendor terms for products or services your business needs is a strong way to benefit your liquidity management, and also build business credit. Again, like any credit facility understanding credit extension approval criteria of vendors will ensure your capital management and access to funding is where it should be for peak performance.

Building business credit is an art and science, which can be achieved in as little as 6 months These are all great options available to small business owners who are looking to build business credit. Consider the advantages of each, and determine which options are best for your business.

If you want to learn more about establishing and building business credit to help with your long-term funding, Lavan Financial Group is here to help.

For more detailed information and help you can:

  • Visit our website where you can download various business E-Books including our Business credit building E-book
  • Reach out to one of our small business advisors (203) 308 4547
  • Complete an online pre-qualification questionnaire to gain free access to our comprehensive business funding and credit building system that’s packed with educational material and resources to help you rapidly establish business credit and access the funds you need to help your business succeed.