How to Build Business Credit for a Small Business

Posted by needtshirtsnow 06/23/2023 0 Comment(s)

How to Build Business Credit: A Step by Step Guide


How to build business credit

Building business credit is essential for any company, as it helps secure better financing options, lower interest rates, and improved payment terms with suppliers. A strong business credit profile can also make your company more attractive to potential investors and partners. Here's a comprehensive guide on how to build business credit for your company.


1. Register Your Business

To establish business credit, you must first register your company as a separate legal entity. This means forming a corporation, limited liability company (LLC), or other legal structures that create a distinction between your personal and business finances. Make sure to register your business with the appropriate government agencies and obtain any necessary licenses and permits.


2. Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is a unique identifier assigned by the Internal Revenue Service (IRS) to businesses for tax purposes. Obtaining an EIN is a crucial step in building business credit, as it separates your personal and business financial activities. You can apply for an EIN online through the IRS website.


3. Open a Business Bank Account

Open a business checking account in your company's name using your EIN. This account will help you manage your company's finances separately from your personal accounts, making it easier to track expenses, revenues, and taxes. Additionally, maintaining a business bank account in good standing can positively impact your business credit profile.


4. Establish a Business Address and Phone Number

Set up a dedicated business address and phone number, separate from your personal contact information. This step not only adds credibility to your company but also helps establish your business credit profile. Make sure to list your business address and phone number consistently across all documents, applications, and online platforms.


5. Register with Business Credit Bureaus

Business credit bureaus, such as Dun & Bradstreet, Experian Business, and Equifax Business, track and report business credit scores. Register your company with these bureaus and ensure that your business information is accurate and up-to-date. Dun & Bradstreet, for example, requires you to obtain a D-U-N-S Number – a unique identifier for your business – to establish a credit profile.


6. Establish Trade Credit with Suppliers

Trade credit involves purchasing goods or services from suppliers on net terms (e.g., Net 30 or Net 60), which allows you to pay the invoice at a later date. By establishing trade credit with your suppliers, you can build a history of on-time payments that will positively impact your business credit score. Ensure that your suppliers report your payment history to the business credit bureaus. With our t-shirt printing business, we would open a net 30 account with t-shirt distributors and manufacturers and not need to pay for shirts upfront. 


7. Obtain a Business Credit Card

Apply for a business credit card using your EIN and business information. A business credit card helps you manage company expenses while building credit history as long as you make on-time payments and maintain a low credit utilization ratio. Some business credit cards also offer rewards and benefits tailored to the needs of small businesses.


8. Borrow Responsibly

If your business requires additional financing, consider applying for a small business loan or line of credit. Responsible borrowing and timely repayment can significantly contribute to building a strong business credit profile. However, it's crucial to borrow only what you need and can reasonably repay to avoid negative impacts on your credit score.


9. Monitor Your Business Credit Reports

Regularly review your business credit reports to ensure accuracy and address any discrepancies or errors. Monitoring your credit reports also helps you track your progress and identify areas for improvement. Most business credit bureaus offer paid services that allow you to access and monitor your credit reports.


10. Maintain Good Financial Habits

Building and maintaining strong business credit requires ongoing effort and attention to your financial habits. Make sure to:


  • Pay all bills and invoices on time or early
  • Keep your credit utilization low
  • Maintain accurate financial records
  • Limit inquiries and new credit applications

By following these steps and maintaining good financial habits, you can establish and build a solid business credit profile that will benefit your company's growth and success in the long run.


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