Building strong business credit is a cornerstone of financial success for any small business. It not only gives you access to funding with better terms but also shields your personal credit and finances from potential risks. Yet, many entrepreneurs struggle to build business credit, often due to a lack of understanding or a misstep in the process.
This comprehensive guide will show you step-by-step how to build rock-solid business credit, maintain it, and use it strategically to grow your company. For an in-depth dive into funding options and business credit strategies, sign up for this Free Training to discover 50+ ways to secure the capital you need.
What Is Business Credit and Why Does It Matter?
Business credit refers to your company’s ability to borrow money or access financing under its name. It works similarly to personal credit, but it’s tied solely to your business entity. Lenders, vendors, and potential investors use your business credit profile to assess your company’s financial health and trustworthiness.
Key Benefits of Strong Business Credit:
- Higher Credit Limits: Access larger amounts of funding compared to personal credit.
- Lower Interest Rates: Better credit means more favorable terms.
- Separate Finances: Protect your personal assets by keeping business and personal finances distinct.
- Increased Business Value: Strong credit makes your business more attractive to buyers or investors.
Step 1: Establish Your Business as a Separate Entity
Before you can build business credit, you need to set up your company as a legally recognized entity.
Here’s What You Need to Do:
- Form a Legal Entity: Register your business as an LLC, corporation, or other formal structure. Avoid sole proprietorships, as they don’t separate personal and business finances.
- Obtain an EIN: An Employer Identification Number (EIN) is like a Social Security number for your business and is required for tax filings, business bank accounts, and many loan applications.
- Register Your Business: Ensure your business name is registered with the appropriate state or local authorities.
Step 2: Build a Professional Business Presence
Lenders and vendors look for credibility when extending credit. A professional business presence signals that you’re serious and reliable.
Key Steps to Professionalize Your Business:
- Business Address: Use a dedicated business address or a virtual office. Avoid using a P.O. box or home address.
- Phone Number: Get a business phone line listed in directories like the National 411 database.
- Website and Email: Set up a professional website and use an email address with your domain (e.g., yourname@yourbusiness.com).
- Bank Account: Open a business bank account and use it exclusively for business transactions.
Step 3: Open Vendor Accounts to Build Credit History
Vendor accounts are one of the easiest ways to start building business credit. These accounts allow you to purchase goods or services on net terms (e.g., net-30, net-60), meaning you have 30 or 60 days to pay.
How to Start:
- Work with vendors that report to business credit bureaus like Dun & Bradstreet, Experian Business, and Equifax Business.
- Common vendors that approve new businesses include:
- Quill: Office supplies.
- Grainger: Industrial equipment.
- Uline: Shipping and packaging materials.
- Pay invoices on time—or early—to establish a strong payment history.
Step 4: Apply for a Business Credit Card
Once you’ve built a small credit history with vendor accounts, the next step is to get a business credit card.
How to Choose the Right Card:
- Secured Cards: If your credit is limited, start with a secured card that requires a deposit.
- Rewards Cards: For businesses with decent credit, choose a card that offers cash back or travel rewards.
- Low APR Cards: If you plan to carry a balance, look for a card with a low interest rate.
Pro Tip:
Use the card responsibly by keeping your utilization below 30% and paying off balances in full each month.
Step 5: Monitor Your Business Credit Regularly
Just like personal credit, your business credit profile needs regular monitoring to ensure accuracy and catch potential errors.
Where to Check Your Business Credit:
- Dun & Bradstreet: Obtain your D-U-N-S Number if you don’t already have one.
- Experian Business: Provides detailed credit reports.
- Equifax Business: Offers insights into your creditworthiness.
Pro Tip:
Dispute any inaccuracies on your credit report immediately to avoid damaging your score.
Step 6: Diversify Your Credit Profile
A healthy business credit profile includes a mix of credit types. Over time, aim to diversify your accounts by adding:
- Business Loans: Small loans from local banks or credit unions.
- Lines of Credit: Access flexible funding for unexpected expenses.
- Equipment Financing: Finance the purchase of tools or machinery.
Step 7: Maintain Good Credit Practices
Building credit is one thing—maintaining it is another. Follow these best practices to keep your business credit in great shape:
- Pay Bills Early or On Time: Payment history is the most significant factor in your credit score.
- Keep Balances Low: Avoid maxing out credit lines or cards.
- Review Contracts: Understand loan and vendor terms before signing.
Common Mistakes to Avoid
Even with a solid plan, mistakes can hinder your progress. Watch out for these pitfalls:
- Mixing Personal and Business Finances: Always separate personal and business transactions.
- Ignoring Credit Scores: Regularly monitor your business credit profile to catch issues early.
- Applying for Too Much Credit: Too many inquiries can lower your score and make lenders wary.
How to Use Business Credit Strategically
Strong business credit isn’t just about getting loans—it’s a tool for growth. Here’s how to use it effectively:
- Expand Operations: Open new locations, hire staff, or invest in technology.
- Negotiate Better Terms: Strong credit gives you leverage with suppliers and vendors.
- Weather Economic Downturns: Use credit to maintain cash flow during slower seasons.
Take the Next Step: Free Training
Building business credit is a step-by-step process, but you don’t have to go it alone. Sign up for this Free Training, led by business credit expert Ty Crandall, to learn:
- Insider strategies to build and leverage business credit.
- How to make your business attractive to lenders.
- 50+ funding options available now—even for new businesses or those with poor credit.
Conclusion
Building rock-solid business credit is a game-changer for small business owners. By separating your personal and business finances, establishing strong credit practices, and leveraging funding options strategically, you set your business up for long-term success.
Don’t let uncertainty hold you back. Join the Free Training today and unlock the full potential of business credit for your company’s growth.